European Majors Weighed Down By Greece Exit Worry
ActionForex | May 28, 2012 04:02AM ET
While the global equity markets stabilized last week, the currency markets didn't. Dollar, and to a slightly lesser extent the Japanese yen, continued to strengthen against other major currencies. Focus remained on the question of whether Greece will exit Eurozone, and the subsequent impact. The informal EU summit did nothing to restore market confidence as Euro weakened against all major currencies expect the Swiss Franc. Dollar' index's break of 81.78 resistance confirmed medium term up trend resumption and we'd likely see the index break through 82.5 level this week. Also, the technical development opened the door for further rise to 85 level. Strength in dollar exerted some pressure on commodities where the CRB index dived again to close at 281.95. Overall tone in dollar and yen will remain firm in near term while the relative strength of European majors and commodity currencies will depend on when the selloff in stocks resume.
Comments from former Greece prime minister Papademos that "risk of Greece leaving the euro is real" triggered some nervousness in the markets last week. IMF chief Lagarde said that Eurozone is "at the very epicenter of the crisis". She said that Greece exit from Eurozone is not a preferred option but IMF and others have to be "prepared for all possible situations". It's reported that ECB has set up a working group, run by Executive Board member Asmussen, on preparation for escalation of the crisis in Greece. There were talks that Greece exit could open doors to other peripherals including even Spain and Italy. And an immediate risks for European bank is deposit flight from indebted nations. Fitch ratings said that non-resident investors are pulling fund out of Spain and Italian public debt in Q1 and the trend of outflows could continue in the coming quarters. The flight to safe haven Swiss Franc indeed triggered speculations that SNB would impose a a deposit tax to discourage investments, or raising the EUR/CHF floor. EUR/CHF spiked higher last week but faded as the story didn't develop while Swiss officials declined to comment.
The informal EU summit ended with no concrete resolutions to deal with the sovereign debt crisis in the region. While finance leaders agreed that stimulating growth is important, they refrained from agreeing on aggressive measures. Similarly, although EU ministers voiced that Greece’s stay in the bloc is preferred, no compromise has been made on the balance between austerity and growth. French President Hollande called for the issuance of the Eurobonds, but it was, as expected, objected by Germany. Indeed, there are several prerequisites that France itself has to meet before it is ready for such sovereign bonds. More in BOJ Likely To Enhance Purchases Of Long-Term Assets In July .
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.