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Euro Pressured By Greek Saga

Last updated 3/18/2010 6:27 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Papandreou - Greece can't continue austerity measures at high rates may go to IMF
• UK Mortages 48K lower than 52K forecast
• Asia lower by nearly -1%, Europe down slightly
• OIl at $82/bbl
• Gold steady at $1125/oz.

Overnight Eco

• JPY BSI Manufacturing Index 4.3 vs. 15.3
• CHF Trade Balance 1.29B vs. 2.73B
• CHF Industrial Production 6.4% vs. 5.1%
• EUR Current Account -8.1B vs. 2.9B eyed
• GBP UK Mortage lending drops for third month in a row to 48K
• GBP Public Sector Net Borrowing 12.4B vs. 14.6B eyed
• GBP CBI Industrial Order Expectations n/a

Event Risk on Tap

• CAD Foreign Securities Purchases
• USD Unemployment Claims expected at -456K
• USD CPI expected at 0.1%
• USD Current Account expected at -120B
• USD Philly Fed Manufacturing Index expected at 17.2
• USD CB Leading Index expected at 0.1%

Price Action

• USD/JPY back to 90.00 as risk aversion spikes
• AUD/USD holds above 92.00 despite euro worries
• GBP/USD just below 1.5300 with eco data offsetting
• EUR/USD takes out 1.3650 on renewed Greek concerns

Euro came under renewed pressure in the wake of an announcement by Greek Prime Minister George Papandreou that Greece may turn to IMF if the EU is unable to provide the country with necessary loan guarantees and lower its cost of borrowing in the credit markets. Meanwhile yen slipped below the 90.00 figure as risk aversion flows flared up in Asia with Nikkei down by almost 1%.

As we noted earlier, “Up to now Greece has been able to roll over its debt through market means alone but it has had to pay punitive interest rates that are fully 300 basis points above German bunds. Greek government officials feel that Greece has already made considerable sacrifices by enacting a broad set of austerity measures and are not willing to incur a heavy debt service burden as a result of these higher interest rates.”

If the Greek funding issue is not resolved it could open the way for further sell off in Southern European sovereign bonds including Italy – EZ third largest economy  - which has been recently criticized by the European Commission. The EC cast doubt on the notion that  Italian budget deficit could be reduced to 3% of GDP by 2012. The euro bounced by mid morning Frankfurt trade after probing 1.3650 earlier but remains vulnerable to further selloffs as North America comes on line. The overnight eco data was of no help with the Current Account turning to a -8.1B deficit versus expectations of 2.9B surplus as imports soared

Meanwhile in UK the data proved positive for the pound as Public Sector Net Borrowing rose less than expected at 12.$B vs. 14.6B eyed. The January numbers also came in a bit better suggesting that UK tax receipts are increasing  as the recovery slowly take hold which could make the financing of budget deficits a bit easier as the year progresses. On the other hand the UK housing market remained moribund with mortgage approvals sinking for the third month in a row to 48K from 52K expected. Overall, the data from UK has been surprisingly positive this week but the pair now runs into serious resistance at the 1.5400-1.5500 level and cable is unlikely to clear those barriers unless the market becomes convinced that the UK recovery has momentum.

In North America today the market will get a look at the weekly jobless claims, Philly Fed and the LEI data as well as the CPI reading which is expected to be rather muted.  The data today is decidedly second tier and could have only a limited impact on trade unless it produces some strong upside surprises. In that case the euro could continue to suffer against the dollar but also on the crosses as traders allocate capital to more productive economies elsewhere in the G-20.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.