Intraday Market Thoughts

Euro Pares Gains on Coalition Complication

by Patrik Urban
Jun 18, 2012 13:08

EUro drops over a full cent against USD after Sunday's initial spike as Leftist Syriza says will not join the coalition Govt. New Democracy Party is already attempting to form a coalition to secure remaining IMF tranche; Germany implies flexibility on demanded austerity; Spanish and Italian yields continue to rise. US calendar limited to Canadian international transactions and NAHB housing index. Last nights Premium Insights are out. See more below.

The Eurozone break up catastrophe seems to have been avoided (at least for now) as the pro-bailout New Democracy that won Sunday's Greek election will attempt today to form a coalition with socialist PASOK party that also backs the bailout with its consequences. Party leaders' official meeting is scheduled to begin around 11:00 am ET. The immediate pressure has declined but optimism could quickly disappear if the governing coalition is not formed quickly. EURUSD lost a full cent as it dropped to 1.2619 and currently trades around 1.2630.

G20 meeting starts today in Mexico and continues tomorrow. The pressure will be on the European members to provide definite solutions for the European crisis. Only then can the rest of the members start preparing stimulus plan that would provide both debt reducing and pro-growth measures.

Germany seems to have softened its stance on austerity plan imposed on Athens as it implied that it is willing to renegotiate the time frame of the economic reforms implementation that partially contributed to 22.6% unemployment rate and eight quarters of declining GDP. If confirmed, such a step could ease the G20 negotiations.

Debt markets are still anxious as the Spanish 10 year yield continues to soar and trades around 7.12% while the Italian counterpart rose to 6.05%.

Data reports for the US session are limited to Canadian international securities transactions due at 8:30 am ET that are seen higher in April at CAD 3.41 bln from previous CAD -2.08 bln followed by NAHB housing market index at 10:00 am that is expected to decline marginally to 28 in June from May's 29.

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