Intraday Market Thoughts

Greece in Disarray, Dollar Falls Anyway, Aussie & China Figs Next

by Ashraf Laidi
May 10, 2011 0:49

Fresh headlines about Greeces default risk led a bumpy day of trading for the euro but the overriding theme was once again US dollar weakness. The session lacked a trading focus but mildly positive risk appetite and rising commodity prices were enough to send the dollar to the bottom of the G10 complex. Focus shifts to CHINA & AUSSIE TRADE FIGURES.

Greece dominated news flow: 1) S&P downgraded Greece two notches to BB- and said the outlook remains negative. 2) Moodys said a multi-notch downgrade to Greece is possible. 3) the German press had several stories about Greek debt restructuring 4) Greeces labour minister said it will be difficult to return to the bond market in 2012 5) Greek two-year yields hit 25.5% and credit default swaps hit records. 6) The contagion spread to Ireland and Portugal as well, with two-year yields at records above 12% in both nations.

The news on Greece sent the euro cascading to 1.4254 from 1.4400 at the beginning of US trading. But even downgrades, defaults and disarray couldnt keep the euro down against the USD as it rebounded to 1.4386 by the end of the session. On the day, the euro etched out a small gain while the dollar lagged. The Australian dollar led, followed by the Swiss franc. The unusual occurrence of AUD and CHF at the top of the leaderboard shows the overall themelessness of the day.

Whats worrisome is that the market needs less and less of a reason to sell USD against anything. In spite of last weeks risk aversion and commodity crash, the USD is trading less than 200 pips from cycle lows against CAD, AUD, CHF and NZD. Part of the reason for todays dollar decline was commodities and stocks. Oil and silver gained a healthy 6-7% on the day, gold climbed $21 to $1513 and copper climbed 2%. The S&P 500 added 6 points to 1346.


Australia will release its trade balance for April at 0130 GMT. A surplus of A$530 million is expected but the breakdown of the data will shed light on how severely the earthquake in Japan is affecting global trade. About 20% of Australian exports go to Japan and a disappointing figure may be due to disruptions and plant closures.

China will release April trade balance figures at 0200 GMT. THIS REPORT IS BADLY UNDERAPPRCIATED BY TRADERS. A surplus of $3.2 billion is expected but this is not the data point to focus on. Instead, look to the import/export figures. Imports are expected to rise 28.9% y/y while exports are expected up 29.5%. Focus especially on imports as Chinese importers are at the very forefront of the global supply chain. When the Chinese are increasing imports its because they see strong worldwide demand for finished goods. Last month, strong figures on imports (27.3% vs. 19.5% exp) and exports (35.8% vs. 21% exp) foreshadowed strong CPI and GDP reports.

By AB - Staff


Latest IMTs