Forex Blog

May 18, 2012

Loonie the first to hike?

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 11:14 am

Canada looks like a safe bet to be the first amongst the G8 members to hike rates. Last month’s inflation figures were a tad stronger than expected, topping Governor Carney’s +2% inflation target. Despite the small breach, no CBank in this stuttering economic environment would be rushing to raise rates. Canada’s outperforming metrics, employment, housing and manufacturing data still have to combat specific external headwinds that scream for extending domestic accommodative policies. The BoC has been very vocal about being adequately ‘flexible’ in its inflation target mandate. The timing of any hike will be ‘weighed carefully against domestic and global economic developments.’ Currently, risk aversion has not been kind to the loonie.

Below are some other highlights of the week:


AMERICAS

  • USD: US consumer prices were flat last month (+0.3% vs. +0.3%), ending three-months of price increases as falling gas costs kept inflation at bay. Core-prices have risen +0.2%, m/m, and +2.3%, y/y. The annual rate for the overall and core continue to hover above the Fed’s+2% target. Despite falling gas prices easing overall inflation, rising core could limit the Fed’s ability to stimulate the US economy further, even by additional bond buying.
  • USD: Retail sales grew just +0.1% headline and ex-autos, below market expectations of +0.2%. Analysts note the sales print is to some extent a payback after a strong Q1 gain. Last month saw a particular weakness in building materials and gas station receipts on the back of weaker gas prices.
  • USD: NY Empire State manufacturing rebounded this month. The business conditions index rallied to 17.09 after falling 14 points to 6.56 in April. Most of the sub-indexes improved like new orders, shipment, labor conditions and the employment index. However, price measures eased this month as did optimism about the future.
  • USD: Housing starts beat expectations, rising to +717k vs. +680k. On the flip side building permits dropped back down from +769k to +715k after March’s +62k surge. It remains the second highest monthly reading in just under four-years.
  • USD: IP rebounded last month, jumping +1.1%, m/m, further proof of a healthy demand for factory goods. Other data showed that US Capacity utilization also rose to +79.2% from a revised +78.4%. Big picture however, operating rates remain below their long-run average, just above +80%.
  • CAD: March Canadian manufacturing shipments gained +1.9%, beating expectations of a +0.4% monthly rise. The gain was led by an increase in sales from petroleum and coal products.
  • USD: The weekly EIA reported crude inventories were up +2.1m barrels just above weekly expectations of +1.5m.
  • CAD: Foreigners reduced their Canadian security holding for the second consecutive month (-$2b). On the flip side, Canadians bought the largest amount of foreign product in five-years last month (+$6.3b, with US equities accounting for +60%).
  • CAD: Canadian manufacturing shipments rallied in March, up +1.9% vs. +0.4% expectations.
  • CAD: Wholesale trade climbed +0.4% to +$49b in March, mostly on the back of motor vehicles and the parts sector. Sales volumes were also unchanged on the month.
  • CAD: BoC quarterly review stated that “delay or front loading of fiscal consolidation may cut global GDP 7-8% by 2015. Monetary policy may be needed to support financial stability in exceptional circumstances” In translation, Governor Carney has little concern for the Euro meltdown and is flexible for liquidity injections if required.
  • USD: Level of US initial jobless claims remained unchanged, w/w, at a seasonally adjusted level of +370k. The four-week moving average falls to the lowest level in more than a month (-4.7k to +375k). The data suggests that last month’s spike is likely due to seasonal factors. The May employment report is likely to confirm the slower trend in hiring that emerged in March.
  • USD: The Conference board’s leading economic indicators index slid -0.1% last month, the first drop in eight-months. Negative contributions came from last month’s contraction in building permits and a jump in initial claims. The broad softness in this month’s data implies weak growth in the latter half of Q2.
  • USD: Philly Fed truly disappointed and missed all market expectations, falling from +8.5 to -5.8, the worst print in eight month. The negatives came from new orders, a big plunge in the employment and the future activity index.
  • CAD: Canadian April CPI (nsa) +0.4%, m/m and +2%, y/y; core +0.4% and +2.1% y/y. The market was looking for a headline print of +0.3% and +0.2% respectively. This has the hawks wondering when Governor Carney will pull the trigger. Despite probably being the first G8 country that is going to actually hike rates, the market is beginning to price in no hike this year after a disappointing Canadian GDP print in February, and because of the continued euro-zone turmoil.

RBA Rate Cut Squeezes AUD

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 11:14 am

Asian bourses have ended trading hitting four-month lows as weaker US data added to rising worries over Europe. Commodities and their currency sensitive pairings are not immune to the surround sound of contagion fears. Gold has been able to dig itself out of Mondays bear market trap, ending on a high, and in the black. The same cannot be said for the Aussie, usually a strong yellow metal supporter, is seen as a higher risk because of the country’s overall commodity price exposure and high exchange rate. The RBA’s dovish stance is reducing the AUD’s yield spread advantage, adding to the impact of fears of a hard landing in China. The continued aversion to risk is pushing down high-yield currencies. Euro political concern and weaker US data is having an exaggerated effect on the currency outright. The Aussie rate markets continue to rally, pushing 2-year government yields down as the OIS market move to price in a high probability that the RBA delivers a -50bp cut on June 5.

Below are some other highlights of the week:


ASIA

  • CNY: The PBoC lowered their Required Reserve Ratio by -50bps to +20% last weekend. This will allow authorities to release approximately +CNY500b of liquidity into the banking system and “help smooth liquidity imbalances.” Analysts are not ruling out any further cuts this year as China shift to supporting growth rather than boosting it. Guilty by association has the antipodean currencies currently struggling outright as weaker than expected Chinese data of late has added to this market unease.
  • NZD: Kiwi retail sales fell -1.5%, q/q, in Q1. This follows two quarters of Rugby World Cup-boosted sales (thankfully the All-Blacks won) at the end of 2011. However, antipodean currencies remain vulnerable to Chinese data reporting.
  • AUD: Aussie home loans rose +0.3%, m/m, in March, following a -2.5% decline in the previous month. The RBA’s role is to promote balanced growth; however, they acknowledge that growth in some sectors of the economy will remain below the average experienced over the last couple of decades. Market continues to price in a dovish CBank.
  • INR: India’s WPI inflation rose to +7.2%, y/y last month from +6.9% in March. It is worth noting that core prices fell -0.1%, m/m, on a seasonally adjusted basis with most of the rise in the headline driven by food. The higher inflation print increases the risk that the RBI may keep rates on hold at the next meeting in June.
  • AUD: The RBA minutes noted that it was “desirable for interest rates to move below the levels that prevailed in December, and a 50bp cut was required, taking into account higher bank funding costs and less mortgage pass-through.” This still allows them room to ease even further. If the global economy deteriorates next quarter, a similar cut will be on the table.
  • NZD: Non-resident bond holdings rose to +62.1% last month from +60.9% in March.
  • CNY: China’s Foreign Direct Investment has fallen for the sixth straight month, recording a -0.7%, y/y, decline in April after a -6.1% drop in the previous month.
  • KRW: South Korea’s import price index rose last month at its slowest pace in more than two-years, gaining +1.7%, y/y, compared with a +3.5% rise in March. The export price index was up +2%, y/y, after being unchanged in March.
  • NZD: Analyst’s note that Kiwi whole milk powder prices dropped -8.9% in the latest Fonterra auctions. Fonterra is the world’s biggest milk exporter. Year-to-date, prices have fallen -30%. A weaker commodity price always leaves the Kiwi vulnerable.
  • AUD: Aussie Westpac Consumer Confidence Index recorded a modest gain of +0.8% to 95.3 in May, compared with a -1.6% decline last month.
  • JPY: Japan’s machinery orders fell -2.8%, m/m, in March, following a revised +2.8% increase in February.
  • JPY: The Japanese economy expanded faster than estimated in Q1, boosted by reconstruction spending. Q1 GDP rose +4.1%, q/q annualized, while Q4 GDP growth was revised higher to +0.1% from -0.7% previously.
  • JPY: Housing loans grew +2.4%, y/y, in Q1, accelerating from the +2.2% rise recorded in Q4.
  • KRW: Korea’s department store sales fell the most in 3-months in April, declining -3.4%, y/y, compared with a +1.6% rise in the previous month. South Korea announced that it is “prepared to take prompt action to stabilize markets should it be needed as Europe’s sovereign debt crisis deepens.”
  • AUD: Aussie average weekly earnings rose +1.1%, q/q, in February.
  • NZD: Kiwi ANZ job advertisements fell -2% in April, following a revised -0.9% decline in March.
  • AUD: Aussie rate markets continue to rally, pushing 2-year government yields down -22bp as the OIS market move to price in a high probability that the RBA delivers a -50bp cut on June 5.
  • JPY: The Japanese government has raised its assessment of the economy for the first time in nine-months. This certainly will not help the fallout of yen appreciation. Finance minister Azumi said that he is watching the value closely and is cautious on yen strength.
  • CNY: China reported that average property prices in 70 cities covered in a government survey declined on a year-on-year basis in April. This was the second consecutive monthly decline, as developers continued to cut prices to boost sales amid a two-year-old government campaign to cool the property sector.

Greek Contagion Pushes Markets into Red for Year

Filed under: OANDA News — Tags: , , , , , , , — admin @ 7:05 am

World shares slid and German borrowing costs hit record lows on Friday as a deepening Spanish banking crisis, uncertainty about Greece’s future in the euro zone and lacklustre U.S. data bolstered safe-haven assets.

World stocks, as measured by the MSCI index, dropped 0.7 percent and are now below where they began the year, having relinquished all the first-quarter gains fuelled by the European Central Bank’s injection of more than a trillion euros of three-year money.

That rally is now a distant memory as an ugly week for stock markets looked likely to end even uglier.

Across the board, riskier assets from commodities such as oil and currencies like the euro and the Australian dollar were all heading for big weekly losses.

While U.S. stock futures pointed to a modestly higher open on Wall Street, following a sharp drop on Thursday, the FTSEurofirst 300 of leading European shares slid 0.6 percent to 975.71 by 1130 GMT, falling for a fifth day running and taking its weekly loss so far to nearly 5 percent.

Facebook will make its Wall Street debut after the world’s No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history.

Benchmark 10-year German bond yields hit a record low of 1.396 percent and two-year yields also fell to their lowest-ever level at just 0.028 percent.

Investors were spooked by a ratings downgrade of 16 Spanish banks by Moody’s Investors Service – although the move had been expected – and an unexpected contraction in U.S. regional factory activity reported on Thursday.

Reuters

US Banks Up Insurance Sales On Euro Debt

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 7:02 am

U.S. banks increased sales of protection against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the last quarter of 2011 as the European debt crisis escalated.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose 10 percent from the previous quarter to $567 billion, according to the most recent data from the Bank for International Settlements. Those guarantees refer to credit-default swaps written on bonds.

JP Morgan and Goldman Sachs Group Inc., two of the top CDS underwriters in the U.S., say they have bought more protection than they sold, indicating they may benefit from defaults in the region. That outcome is called into question by JPMorgan’s $2 billion loss on similar derivatives, which shows that risks don’t vanish when offsetting bets are taken, said Craig Pirrong, a finance professor at the University of Houston.

“All these hedges trade one risk for another,” said Pirrong, whose research focuses on derivatives markets. “The banks say they’re flat on European risk, but that’s based on aggregated positions. We don’t know how those will hold off if the European crisis blows up.”

JPMorgan Chairman and Chief Executive Officer Jamie Dimon said last week that the bank was trying to reposition a portfolio of corporate credit derivatives and used a flawed trading strategy. The lender, the largest in the U.S. by assets, is believed to have sold protection on an index of corporate debt and bought protection on the same index to hedge its initial bet, according to market participants who asked not to be identified because their trading strategies aren’t public.

The two bets moved in opposite directions this year, causing losses and proving that even hedges that look perfect can break down, Pirrong said.

Bloomberg

Gold Climbs a second day on Euro concerns

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 6:59 am

Gold gained for a second day in New York as concern Europe’s sovereign-debt crisis is worsening spurs demand for the metal as a protection of wealth.

The euro reached a four-month low versus the dollar after Fitch Ratings downgraded Greece’s long-term credit rating, citing heightened risk that the nation may not be able to sustain membership in the monetary union. Bullion jumped 2.5 percent yesterday, the most since October, as a U.S. report showed manufacturing in the Philadelphia region unexpectedly shrank in May for the first time in eight months.

“To see a return of gold reacting positively to macro stresses is indeed refreshing, but it is still far too early to make any firm conclusions from here that gold has indeed turned the corner,” Edel Tully, an analyst at UBS AG in London, wrote in a report today. “Follow-through buying will have to kick in to encourage investors to jump in.”

Gold for June delivery gained 1 percent to $1,590.70 an ounce by 7:58 a.m. on the Comex in New York. Prices are up 0.4 percent this week. Bullion for immediate delivery was 1.1 percent higher at $1,591.70 in London

Gold is up 1.5 percent this year after 11 consecutive annual increases. It slumped the previous two weeks as a stronger dollar cut demand for the metal as an alternative asset. Holdings in bullion-backed exchange-traded products rose 3.3 metric tons to 2,381.8 tons yesterday, about 1.2 percent below the March 13 record, data compiled by Bloomberg show.

Gold reached the lowest price this year on May 16 as Greece’s inconclusive May 6 election sparked political turmoil and reignited concern the country will renege on pledges to cut spending as required by the two separate rescue packages. In Spain, the cost of insuring against a default jumped to a record. Moody’s Investors Service lowered the credit ratings of 16 Spanish banks yesterday.

Silver for July delivery rose 1.4 percent to $28.405 an ounce. Palladium for June delivery was little changed at $605.15 an ounce. Platinum for July delivery gained 0.5 percent to $1,460.80 an ounce.

Bloomberg

EUR’s to be Recycled

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 4:35 am

The third largest IPO in corporate history, the largest in tech, is about to make a few specs very wealthy today. Frantic Facebook Friday’s enthusiasm does not seem to be spilling over to disrupt the dower mood of FX. The 50% of Americans who believe that Facebook is a fad, will not be allowed to gatecrash today’s party. The EUR bull thought they caught a break with yesterday’s dismal US data potentially opening the Q3 flood gates. That euphoric feeling has been short lived, flames finally doused by rabid credit agency action in the overnight session. Currently, there are no noticeable peripheral spread narrowing to support this equity led risk rally.

Moody’s has been kept busy in the overnight session, downgrading 16 Spanish banks by one to three notches, with ten of the institutions left on negative outlook. Without going into too much detail, the downgrades reflect each bank’s operating conditions, rapid asset quality deterioration (long too many holiday homes on their books), funding concerns and finally, each entities creditworthiness of the Spanish sovereign. This final point is probably the most significant, analysts note that it affects the ability of the government to support banks. Moody’s is currently Euro country hopping, and this will not be the last of the European banks to be downgraded in this cycle.They have eleven more EU member announcements to handle before the end of next month. Not to be left in the cold, Fitch cut Greek long-term sovereign rating to CCC from B-, bringing its rating in line with S&P’s.

The Greek radicals under Tsipras believe they still have the hammer over the rest of the Europe, presuming that fellow members will not roll the dice and cut off funding to his country. His party believes a financial collapse in Greece would drag his compatriots down as well. Obviously quoting Hollande visions, Europe must consider more growth oriented policies for his homeland. Coming back to the “EUR” reality, there is no alternative for Greece, she must stick to the deal that has been agreed. Other Euro policy makers concur that this is the country’s only rational option. It’s no wonder that contingency plans are being drawn up in case Greece were to exit the Euro-zone. Their woes reinforce the dollar bull views that the single currency will struggle to make it back above 1.30 even if the polls start to signal a greater chance of a pro-EMU composition of the Greek parliament. Any Greek coalitions will still have to face a difficult negotiation on a modified austerity plan. The thought of an ECB easing, to promote growth, does not strengthen the currency either!

may 18 pos

The position ratios continue to show that the market has been quietly gathering EUR’s ahead of this years low print of 1.2624. The EUR bears are happy to pare some of their ‘one directional’ trade positions to at least recycle said funds. There are a few significant strikes occurring today. The larger sizes will only increase short term spot gravitation of certain levels (specifically, 1.27 and 1.2725). Single currency supply is expected to be on hand as the market approaches 1.2750. The longer term focus still remains fixated on breaching the psychological 1.26 barrier below. It will not be unusual for the markets to see the EUR rally intraday, cutting some of the record short positions ahead of this weekends G8 meetings. It’s always prudent to play the percentages in case of event risk. Obviously counteracting this will be the possibility of fresh Euro negative news occurring during the weekend from any embattled member. The trend remains your friend and having cash to recycle also feels good!

Forex heatmap

Other Links:
EUR Short Squeeze Too Far?

Get OANDA’s exclusive weekly Market Pulse FX

Email Address: Preferred Format:

May 17, 2012

EUR Short Squeeze Too Far?

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 4:24 am

This market needs to catch its breath after the selling pressure across currencies and the blood bath in equities this week. It can be rather monotonous to listen to the euphoric rants of the EUR bear. To date, it has been an unfair playing field. They have all the negative ammunition. For the bulls, it seems they have to wait for that squeeze going just a wee bit too far to the left. Risk markets, especially commodities, are very oversold after a dozen or more down days caught in a one directional play. The Greek situation, other than mostly drive-by headlines, will not be resolved until the elections in June and this should create a shift back to trading fundamentals where so many US bulls remain optimistic. Be weary of Facebook Friday, it may cause a short risk squeeze of its own.

It has all come down to the Euro-zone creating a suitable firewall that investors and capital markets feel comfortable with or face a potential breakup of the union. It’s not rocket science; it’s been a perquisite of the euro-zone bureaucratic administrations for many months. They just have not been able to find the winning formula that will appease market concerns. A Euro political shift to the left makes current administration jobs that more difficult, as political powers fight for their own survival in a changing of the guard environment. Europe knows it must make more progress towards a fiscal union to mitigate these financial risks. The countries themselves, especially the peripheries, need to stabilize their own banking systems and work towards a closer fiscal cooperation. Otherwise, the FI market will make funding costs that more expensive and squeeze their liquidity dry.

The market has traded rather timid with Spain coming to tap the bond market. It is all about gauging risk appetite for euro-zone risk. Is the demand there to take down product? For most of the morning Spanish government bond yields did nudge higher, not unusual, as dealers made room for around EUR1.5b-EUR2.5b in three and four-year bonds. Obviously market concern was that demand may be weak because of ongoing fears of an imminent Greek exit from the monetary union. However, another successful Spanish auction has come and gone and financing for the year now stands at +55%. The caveat of caution comes from the percentage transfer of paper from non residents back into Spanish banks hands. Foreign holdings of Spanish bonds has decreased from +43% to +33% in the past year, while domestic banks inventory has increased. It’s not so good for a nervous Spanish financial system to own more of its own debt.

With the auction done and dusted, the lack of a material bounce from the single unit currency will enable the quick spec to maintain their bearish views. The short trade continues to work, but with the 9-day RSI printing it lowest in nearly four years has some tech analysts cautiously concerned. Will the low currency price, so close to this year’s lows, dissuade fresh selling? The daily downtrend remains intact with the market somewhat hellbent on visiting those reported large stops placed below 1.2680. Expect the further optionality at the usual 25-tick prices of 1.2650 and 1.2625 to try to slow the rate of EUR decent.

Forex heatmap

Other Links:
Grexit no more, Spain for EUR

Get OANDA’s exclusive weekly Market Pulse FX

Email Address: Preferred Format:

May 16, 2012

BoE Sees Inflation and Weaker Growth In UK

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 4:58 am

The Bank of England (BoE) said in its report today that the UK’s inflation is likely to remain above its 2 percent target for at least another year, while growth will be subdued and vulnerable to the euro zone debt crisis. The central bank sees inflation at about 1.6 percent in two years time.

The Bank’s forecasts represent a much slower fall in inflation than it predicted back in February as well as a weaker growth outlook. It said that the UK growth is likely to remain subdued in the near term, due to the government’s fiscal squeeze, the pace of the global economy and tighter credit conditions. The euro zone debt crisis remains the biggest threat to Britain.

Reports this month indicated that UK manufacturing and services weakened in April after the economy shrank 0.2 percent in the first quarter.

Britain’s economy suffered its biggest contraction since the 1930s in the wake of the 2008 financial crisis, and had recovered less than half the output lost before it slipped back into recession at the end of 2011. The BoE said that total GDP would not get back to its pre-crisis level before 2014.

On a positive side, the UK’s jobless rate decreased slightly to 8.2 percent in March, pointing to some underlying resilience in the economy. According to the Office for National Statistics, the number of Britons without a job fell by 45,000 in the three months to March to 2.625 million.

The BoE held its key rate at a record low of 0.5 percent in May and kept its bond-purchase target at 325 billion pounds. Many economists do not expect further quantitative easing in the immediate future, but this could change if the conditions in the euro zone deteriorate. The Bank said that despite the changes in the near term outlook, the fundamental policy remained the same.

Sources: Bloomberg and Reuters

Grexit no more, Spain for EUR

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:34 am

Grexit has not occurred yet, but contagion is surely here, just look at the unsustainable debt financing levels in Spain. The EUR squeeze continues, albeit painfully slow. When the Capital markets eventually go for the Greek “kill,” euro policy makers will not have had the time to put in place a structure that allows Greece to leave in an orderly fashion. The potential exit of Greece from the Euro system over the next few months could have some “catastrophic consequences.” The stresses and strains potentially being put on the periphery will again lead to dollar liquidity concerns topping most lists.

The reality is that EU sovereign issues and concerns for the health of its financial system continue to intensify. Just look at the the Spanish banking system. Many believe that the current intensity feels higher than those present after the collapse of Lehman Brothers nearly four-years ago. Whatever fiscal adjustments need to be implemented for the periphery countries will again require a downward revision of growth projections for Europe. The current pace of growth, albeit small, depends on a fast resolution to the periphery crisis and a notable reduction of “this” financial stress. This is unlikely to happen with Spain being in a full-on credit crunch. Due to the economy’s size, it will “ravage” any of it’s own growth, and in turn has a good chance in spreading to other parts of the continent. Forget Greece, the outlier, Spain is the variable to watch here on in.

On the political front, Greece faces another general election after political parties failed to form a “unity” government yesterday. A caretaker government will be chosen today to oversee this election, expected to be held in the middle of next month. Merkel and new French President Hollande indictate that they would consider measures to spur economic growth in Greece, as long as voters there commit to the austerity demanded for Greece to stay in the euro. However, so far this has had no effect on the one way directional play of the single unit.

Despite Italy posting a +EUR2.1b foreign trade surplus or a real downer of a BoE Quarterly inflation report, that put GBP under pressure on the EUR cross, has not been able to dissuade the EUR from testing European session lows. The rabid exiting of risk positions continues to intensify in emerging economies. This is noted by the increasing number of CBank interventions that are trying to slow their currency depreciation down. Even a surprisingly pleasant UK benefits count and an ease in the ILO jobless rate to +8.2% has been trumped by the greater concern over growth and risks from the Euro area than investors had expected.

May 16 Pos

The EUR position chart has not changed much in the past 24-hours. The spread between the long and shorts remains close to 10. The market has been long and wrong, but, it seems that the current move has not been squeezing too many bulls out of their positions. Perhaps they are relying on the bears who are beginning to question when is it time to pare some of “their record” reported shorts. The EUR flight does feel like a falling knife, albeit, an orderly one ever since the break of 1.30. The market continues to decline from the weekly top of 1.2935, honing in on this year low of 1.2624, recorded in early January. Daily momentum remains negative, adding to the bearish sentiment. The wall is expected to appear soon, but will it be this year’s low?

Forex heatmap

Other Links:
Myopic EUR View Tops

Get OANDA’s exclusive weekly Market Pulse FX

Email Address: Preferred Format:

May 15, 2012

Greek Voters Prepare to Roll the Dice

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 1:38 pm

Now that Greek officials have ruled out any chance to form a new government, a follow-up election has been announced. However, this time it appears that voters are now ready to roll the dice and cast their lot with a fervent left-wing coalition running on a campaign to pressure Eurozone authorities for greater leniency in the country’s existing austerity commitments.

The most recent polls suggest that the SYRIZA party – an acronym that translates to “Coalition of the Radical Left” – will improve on its second place finish in the recent election and could lead all other parties with nearly 30 percent of the vote. The SYRIZA leader, Alexis Tsipras, ran in the last election on a platform that would keep Greece part of the Eurozone, while rejecting outright the austerity requirements mandated as part of Greece’s continued financial support and Eurozone membership.

The idea that Greece could not only remain part of the Eurozone but also continue to receive funding all the while willfully refusing to implement its agreed upon spending cuts defies all logic. What’s more surprising, is that with the SYRIZA leading the polls, it appears many Greek voters believe Tsipras could actually pull this off.

Greece is Running Out of Time

On Tuesday, German Chancellor Angela Merkel sought to regain control of the message stating that Greece must either abide by its earlier agreements, or exit the region and return to the drachma. Merkel went on to say that the uncertainty of the situation was damaging to the entire Eurozone and “solidarity for the euro” was at risk so long as the crisis was allowed to fester.

For his part, Tsipras, apparently remains convinced he can have it both ways and while officials continue to favor brinksmanship over policy, Greece stumbles inexorably towards a deadline that cannot be altered. Greece is running out of money with only an estimated 2 billion euros remaining in the kitty. At best, this will keep the country afloat until late July or early August at the latest.

The agreement signed last year calls for another 30 billion euros in support for Greece but this is contingent upon Greece imposing another 11 billion euros in spending cuts. Access to this money is imperative if Greece is to avoid defaulting on its next round of debt repayment.

Between now and the point at which Greece runs out of money, one side will be forced to blink if Greece is to remain within the Eurozone. By voting in Tsipras and the SYRIZA, Greek voters are betting that it will be the Eurozone leaders that find they do not have the stomach for the unknown surrounding a Eurozone sovereign default.

Get OANDA’s exclusive weekly Market Pulse FX

Email Address: Preferred Format:

« Newer Posts — Older Posts »

Powered by Efacilitators Hosting