All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

EU Market Outlook - Tread Carefully

Last updated 6/18/2012 1:36 AM EST (GMT -5) 0 Comments - Add your comment

• Share this:

Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    New Democracy Party (Pro Bailout) wins the first right to form Govt

o    Hollandes Socialists Party wins absolute majority to strengthen

o    Further ‘leaks’ of Grand EU plan in the works

o    Market Moves:

·          Risk currencies gap higher on open but weighed as optimism wanes

·          Asian equity hold on to gains with better support with upcoming Fed meeting

·          Spain’s 10yr yields last 6.87%; Italy at 5.93%; US at 1.58% on Friday

Outlook

For an event that was meant to determine the viability of the European Union, the elation is fairly subdued!! I speak with tongue in cheek of course, as really how was a Greek election outcome meant to provide solutions that the euro zone desperately needs. With Spain and Italy wavering under the strain, does it really matter whether Greece remains or exits the EU? It will to the Greek people of course but the damage of the debt spread, which was the main fears of what a Greek exit would produce, has already taken hold. The one thing the post election has done is remove it from the list of excuses that leaders have been using to avoid addressing the real issues of reform.

Already markets are moving on to the Fed Reserves meeting as the great hope in dragging up markets with an expected liquidity push. How bad does the global situation need to get before we stop relying on the limited Monetary measures of central banks and get started on Fiscal measures determined by leaders. The European Union as a whole does not have a debt problem; it has a debt distribution problem. There is enough money circulating within the union to address its debt issues, the challenge is working through political agendas so that all of the Euro Zone economies are using the same fiscal policy handbook. Not an easy task.

There was a small spark of optimism for this greater cause. The French elections saw Hollandes socialist party receive strong support over the weekend. This may provide the confidence needed for Hollande to state a stronger case on behalf of struggling economies for a revision of the Austerity pact that is currently being protected by Angela Merkel.

European markets can expect to trade higher as Asian markets remained subdued awaiting early leads from Europe. Rallies will remain fairly limited in the interim but may get a short burst of risk buying should the New Democracy party form a coalition.

Greek Elections

Greek voters have played their part for a second time in as many months to try and democratically elect a party to lead them through its most difficult times of the modern era.

The New Democracy party has won the right to try and form a coalition government over the next 3 days with 130 seats, which is 20 seats short of an outright win. This had markets breathe a brief sigh of relief to know that the ball is in the court of the more predictable conservative party. Also adding to the sense of relief was knowing that the other main pro Bailout Party Pa.So.K collected 33 seats which would take a coalition over the 150 seat requirement should they come to an agreement.  

However, this is much easier said than done and we can expect there to be hurdles and delays as both pro bailout parties have agendas and will know the strength of cards that they hold.

Markets are relieved for the short term that the unknown SYRIZA party did not win but they will still be playing a major part in Greece’s progression. There is still a fair bit to play out and today’s result just helps us understand the initial path we take. No matter who takes the helm, the main focus for the elect will be to negotiate the least amount of austerity for bailouts to be received.

French Elections

In an important addition to the political Euro Zone landscape, France held its elections over the weekend that saw the French Socialist parties Hollande strengthen its position. This provides an interesting element to a potential revisit of imposed current Austerity measures. The strongest proponent of the current measures Angela Merkel, is without the co-constructer and backer Sarkozy and one must wonder whether Merkel will be feeling the heat with the growing ground swell of discontent headed her way.

Economic Events to watch in the European session (GMT):

0500 JP                 Jun Bank of Japan Monthly Report

11:30 UK              BoE Deputy Governor speaks

1400 US                1Q Quarterly Financial Report: Retail Trade

1400 US                Jun NAHB Housing Market Index

N/A ALL               G20 Meeting

For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Futures & Forex, Ltd. (“GFT Markets”) and FX360.com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of GFT Markets, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. GFT Markets and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.