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Risk FX Finds a Modicum of Support After G-20

Last updated 9/23/2011 5:16 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Greek FM suggests 50% haircut
• Risk FX rebounds after yesterday's drubbing
• Nikkei of -2.07 Europe up 1%
• Oil at $81/bbl
• Gold rebounds but below $1750/oz.

Overnight Eco

• AUD Conference Board Leading Index (JUL) -0.1% vs. -0.8%
• GBP BBA Loans for House Purchase (AUG) 35.2K vs. 33.2K

Event Risk on Tap

Price Action

• USD/JPY stays close ot 76.25
• AUD/USD rebounds to .9860 as risk ralies
• GBP/USD better bid at 1.5460
• EUR/USD rebounds to 1.3550

Risk FX staged a mild rebound in quiet European morning trade helped by slightly positive equity flows as currency markets absorbed yesterday’s massive selloff amidst a very quiet economic calendar. EUR/USD recovered above the 1.3500 figure while Aussie rallied through .9850 and cable performed best of all holding the 1.5450 level after BBA mortgage applications printed a bit better than forecast.

The G20 pledged a “strong and coordinated” response to challenges facing the global economy, but its statement had only a limited impact on trade as currency markets awaited some sort of tangible policy move. Greek Finance Minister Evaneglos Venizelos stated that Greece face three possible scenarios with respect to its sovereign debt situation. In a speech to Greek lawmakers Mr. Venizelos said that Greece could face a unilateral default, a 50% haircut for its bondholders or the implementation of its July 21 deal with EU under which it would receive a second bailout of 109 billion euros.  

Mr. Venizelos noted that  "It would be dangerous to request the 50 percent haircut,” adding that "This would require an agreed and coordinated effort by many.” Despite his reservations, this was the first time that Greek officials have publicly mentioned the idea of an orderly default and suggests that EU policymakers are seriously weighing this option as a possible solution to the Greek debt crisis. 

As we noted earlier, “No actor in the European debt crisis saga wants to see a disorderly default caused by any unilateral  action by Greece. Therefore this talk of a 50% reduction in Greek debt obligations may  ultimately prove to be the only practical option left.”

On the economic front the calendar is particularly barren today with absolutely no event risk on the North American docket. All eyes will be the US equity markets as currency traders will want to see if investors are willing to assume risk into the weekend after yesterday’s steep selloff. EUR/USD appears to have found some support in the 1.3400-1.3500 region as EZ credit markets have stabilized. If equities rebound the pair could target the 1.3600 level as the day proceeds.

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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.