German Chancellor Angela Merkel wants Greece to stay in the euro zone but the indebted state must adhere to the terms of its international bailout, she was quoted as saying on Wednesday.
“It is still the case that the agreements with the troika and the reform targets must be adhered to. That’s the only way we can imagine the path for Greece back to stability and economic strength,” Merkel was quoted as saying.
In a pre-release for Thursday’s Passauer Neue Presse newspaper, Merkel said nothing had changed about her view that it would take time to solve the euro zone’s sovereign debt crisis and that Greece should remain in the currency bloc.
Greece moved closer to a second snap election on Wednesday when the head of the biggest party launched a new attack on radical leftist Alexis Tsipras, saying his plans for a new government would push the country out of the euro zone.
New Democracy leader Antonis Samaras said in a televised statement that he hoped Tsipras would “come to his senses” before they met for coalition talks later on Wednesday.
Tsipras, riding a wave of public disgust with economic hardship in last Sunday’s election, has demanded that Samaras and socialist PASOK leader Evangelos Venizelos tear up their 130-billion euro bailout deal with the EU and IMF.
Samaras said this would be “a certain and immediate disaster”.
Tsipras, whose Left Coalition SYRIZA came second in the election, received a three-day mandate on Tuesday after Samaras gave up after only a few hours.
He was due to meet both Venizelos and Samaras later on Wednesday but there seems virtually no chance of agreement on a workable coalition to end Greece’s post-election limbo.
By Joel Kruger, Technical Strategist for DailyFX.com
Greece political uncertainty fuels fears of contagion
Euro under pressure but yet to close below 1.3000
Commodity bloc and emerging market FX most exposed
The ongoing political turmoil in Europe continues to shake the markets, with the inability for Greece to form a government now fueling speculation that the country might soon exit the Eurozone. Although an exit by Greece would have only a minimal impact on the broader economy, given the country’s size, fears of contagion seem to be the bigger problem right now, as investors start to price in the impact this will have on larger economies like Spain and Italy.
Technically, we have said that a close below 1.3000 would be a very bearish development for the Euro, as we have not seen a daily close below 1.3000 since January. With this in mind, Euro bulls can still hold onto some hope at this point, as the market has yet to officially put in a daily close below 1.3000. As such, we continue to recommend proceeding with caution at current levels, and only recommend looking to get more aggressively bearish the Euro on a daily close below 1.3000. A daily close below 1.3000 should then open the door for acceleration back towards the 2012 lows from January at 1.2625.
Despite the fact that all of the problems right now are Euro-centric, the Euro is still not the weakest currency in the current market environment, as the higher yielding risk correlated markets get hit even harder. We have been seeing some underperformance namely on the commodity bloc and emerging market FX, and should investors continue to look to flee to safety, we project that these markets will continue to underperform. As such, look for more weakness from currencies like Aussie, Kiwi and Cad, and from the more exotic markets like the Mexican Peso, South African Rand and Turkish Lira.
The weekend’s inconclusive elections in Greece were seen by many as an indication of a rising risk that Greece may exit the euro zone.
The New Democracy won the elections with 19 percent of the vote, gaining 108 seats; Syriza was second with 17 percent, winning 52 seats; and Pasok came third with 13 percent, or 41 seats.
The elections results have raised European concerns over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010, when the European authorities demanded Greece’s government to implement 11.5 billion euros budget cuts.
Alexis Tsipras of Greece’s Syriza announced that he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to inform the EU leaders about revoking their written pledges to implement austerity measures by the time he meets them today to discuss a government alliance. Tsipras handed in this ultimatum to renounce support for the EU’s rescue terms as a condition for the political leaders to enter government. Tsipras told reporters that “there will be no 11 billion euros of additional austerity measures; 150,000 jobs will not be cut.” Samaras and Venizelos rejected his request.
Some analysts said, it is possible that Greek political turmoil could result in a new government that actively renounces the bailout—leaving Greece without its rescue aid. If official funding from the International Monetary Fund (IMF) and the rest of Europe were cut off, the Greek government would have no new sources for cash. It could try to stretch out payments to suppliers and government workers and live off its remaining funds for some time. If there would be no spending cuts, the only alternative left to the government would be to print the country’s own currency to pay for government services.
An exit from the currency would throw into doubt contracts denominated in euros, with consequences for the real economy, not just the financial sector. In absence of assurance that a euro payment will actually be made in euros, companies might be less willing to conduct business or trade with vulnerable member states. Investors would start looking at other countries in an environment, where there is already a weakness of natural demand for Spanish and Italian government bonds, particularly among foreign investors.
The bailout has left the governments of Europe, the European Central Bank and the IMF as Greece’s main creditors. While the international creditors urged Greek leaders to hold to the agreed terms of their EU-IMF bailouts, letting Greece exit euro zone would mean significant losses for them. The two-year-old bailout program and the massive debt restructuring earlier this year have helped insulate Europe’s banking system and private sector from Greek troubles.
In the weekend, Tsipras’s party, Syriza, won just 52 of the 300 seats in parliament, and many economists said that the chances it could have to form a governing coalition appeared slim. If Greece is unable to form a government, it faces another election in June and will be on a collision course with its creditors.
Iran is accepting yuan for some of the approximately $20 billion worth of crude the OPEC member supplies to its main client, China, annually, an Iranian diplomat said on Tuesday, as the two countries try to maintain trade ties despite Western sanctions.
U.S. sanctions against Iran have made paying for its crude with hard currency difficult for top oil customers including China and India, forcing them to look for alternatives.
The U.S. dollar and euros are the two main currencies used in the global oil trade.
But tougher Western measures aimed at pressuring Iran to halt its nuclear programme have forced importers of Iranian oil to pay in the Korean won and the Japanese yen.
The Financial Times on Monday reported that China for months has been transferring renminbi to Tehran through Russian banks to pay for Iranian crude. OPEC’s second largest oil producer was using the currency to spend on goods and services imported from China.
The bears and the quick money speculators thought they got it wrong. The EUR was not supposed to remain bid during yesterday’s North American session. Agreed, filling in “the” gap was a technical necessity, but once achieved, for the bear the positioning felt wrong. Perception is a powerful tool. Many traded believing that the single unit was being supported, in theory, by the potential available liquidity of the ECB and the EFSF/ESM programs. Their liquidity “provides a powerful bulwark against full-blown systemic conditions.” Others were beginning to buy into the idea that the changing of the euro-guard is good for Europe. President Hollande may be able to swing the balance from total austerity to a mixed bag of tricks, to at least create the illusion of progress. Now that the EUR has been unable to hold the line, the focus swings back in the bears favor with Greece again taking most of the EUR negative heat this Tuesday.
In truth, a lower EUR may be in focus, but several months of semi-volatile consolidation within a three cent range of 1.3-1.33, has many investors hesitant to throw the kitchen sink at the single currency. One gets the feeling that market participants would prefer fading a squeeze. However, with everyone feeling that way perhaps yesterday’s gap filling may have been “our bounce.”
With so much negative focus on Greece, sustainable EUR strength may prove elusive. The inconclusive Greek parliamentary results leads to further uncertainty and potential new elections. Even if a second vote were to create a more stable coalition, financial timing is not on the Greeks side. Timing it seems would suggest that any new government would struggle to agree on and secure parliamentary approval for +EUR11.5b in further cutbacks by the end of June as required for the next troika payment. The fear that Greece becomes the first developed nation to default on its debt is becoming more real and hence why the Euro Capital Markets trade so.
The Greek and French electorate are clearly unhappy with the austerity policies favored by European leaders. The Greek stalemate is keeping investors cautious and fueling demand for the safe haven German Bund while off loading periphery product. For the moment, Spanish and Italian bonds yields trade under that psychological +6 to 7% sustainable barrier. Technically, Greek problems have come back to haunt Capital Markets. In reality, they have never gone away. Euro leaders just chose to believe and convey that thought. Expect the Bund to trade close or on top of its record low for some time.
Technically, there are some quasi-official bids slowing down the EUR’s decent, however, market expects a retest of the low 1.29’s. Currently, similar to the Euro election trading pattern, there are small stops below 1.3 with option barriers at 1.2950 remaining the key support for now. Intraday, investors can expect further 1.30 expires, however, selling the single unit on upticks remains the investors trade of choice because of the European political impasse.
The current European situation is beginning to open doors for Yen to outperform over the coming months. The issues surrounding the implementation of Greece’s austerity program, required by international creditors, raises the possibility of a disorderly default by a developed country. The country running out of cash by the end of next month could lead to a chaotic financial market summer. All of this will only benefit the yen, especially with the SNB preoccupied.
The people have voted. The political balance of power is Europe is changing. European elections results show that Hollande has beaten Sarkozy by four-points and the two main parties backing the austerity measures in Greece look very much to be on the ropes. There are doubts on whether the New Democracy and Pasok parties can form a coalition to implement spending cuts to ensure the flow of bailout funds. Currently, “there is no political consensus for the kind of reforms that Greece must implement if it wants to remain in the euro zone.” The markets tomorrow will naturally be looking towards the Franco/German axis for guidance. Germany will surely be urging Hollande to soften his anti-austerity drive. Without it, Capital markets will be out in full force preventing the EUR from finding much traction.
Below you will find the OANDA open order and position graphs just before the Asian Markets begin trading on Sunday May 6. With London trading closed Monday due to the May day holiday, investors can expects some liquidity issues and vacuum price movements. Technically and fundamentally, through key psychological support at 1.3 opens up an initial negative move for the EUR towards 1.285.
Hollande defeated French President Nicolas Sarkozy as voters handed control of the second-biggest European economy to the Socialists for the first time in 17 years.
The 57-year-old Hollande got about 52 percent against about 48 percent for Sarkozy, according to estimates by pollsters CSA and Harris Interactive. The campaign isn’t over; France elects its lower house of parliament in five weeks.
The challenger inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in 30 years to fail to win re-election.
“Hollande’s bet was that rejection of Nicolas Sarkozy was enough to get him elected,” Dominique Reynie, senior researcher at Paris’s Institute of Political Studies, said before the vote. “The message was that if you don’t like Sarkozy then I’m your best bet.”
Sarkozy’s departure may sharpen tensions with key allies as Hollande has advocated a more aggressive European Central Bank role in spurring growth — a measure opposed by Germany — and an accelerated withdrawal from Afghanistan.
