EUR Waits For True Direction

The market is again rounding out a week on a cautious note. Risk appetite remains under pressure from JP Morgans booked trading losses in Q1, Spanish bank restructuring and political indecisiveness in Greece. Despite the EUR being the currency center of attention, price movements have been very orderly over the past 24-hours, just like it has been for most of this week.

With the US bank trading loss potentially climbing in Q2, due to market volatility, has taken some of the shine off some positive but tenuous political developments in Greece. There are hopes of a Greek coalition willing to stick to austerity pledges and hints at some form of flexibility on the Euro-zone government side have allowed the EUR to rally to European session highs. Any political unity will draw questions on the unity’s longevity and stability. It will not take long to answer this question as a unity government will be immediately called upon to pass fresh austerity measures of +EUR11.6b by the end of June. However, that is next months issue. Day or intraday traders are only interested in the noise, and how loud that noise does get.

The EUR has managed to squeeze to Euro session highs on the back of optimistic talks about a Greek coalition. On its way higher, light EUR stops have been triggered with some further stop-losses positioned just above the old support barrier of 1.2950 from earlier this week. Technically, good size selling orders are scattered north of 1.2980. An area where most momentum traders will be expected to fade first time around. Fixed Income dealers have indicated that Greek Bond spreads do not trade with the same enthusiasm as spot.

Regionally, recent Chinese economic data is beginning to add to worries over a slowdown from the region. Weak economic data worries from the worlds second largest economy coupled with unexpectedly slow growth in factory production and milder global inflation, has many questioning the likelihood of a looser monetary policy. The theme this week has been the capital flow to the bond market as many investors exit or pare some of their riskier trades.

According to data released by the European commission this morning, Euro economic growth is supposed to retract this year while Spain and Italy reenter a recession. GDP in the 17-nation euro area will drop -0.3%, while the deepest contraction is expected to come from Greece, declining -4.7% this year, with the economies of Spain and Italy both seen shrinking -1.8% and -1.4% respectively. In 2013, the euro-region economy may expand +1%, however, this remains a long way off in both politics and economic timing!

The position charts for the first time in a number of weeks indicate that long positions are edging out the shorts. With the lack of downside movement, the currency’s inability to be dragged lower, has many believing that any good news credits small positive long position. Even with the single unit slipping all week long, the market needs to breach the 1.29 for the holder to off load some of their longs and finally feel comfortable selling into this currency move with some conviction.

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