Euro Levitates
The euro continues to show resilience in the face of yesterday’s worrying headlines from Greece. Although EURUSD lost 30 pips overnight, it continues to trade comfortably above 1.30 and, for now at least, there seems to be little concerted appetite to drive it sharply lower. Nevertheless, worrisome post-election headlines continue to emanate from Greece: the Democratic Left Party has refused to join any New Democracy/PASOK coalition; PASOK’s leader Venizelos has insisted that Greece should renegotiate the terms of its bailout; New Democracy leader Samaras has failed to form a new government giving up after only a few hours even though he had up to 3 days available to him for this purpose; and warnings from unnamed Greek finance ministry officials that the country may run out of funds by the end of June. To be sure, it would be dangerous to let recent price action obscure the risk of euro-unfriendly outcomes in the end, whether manifest in the form of greater tensions within Greece if the austerity drive continues, a halt in EU/IMF support if a new government tries to renegotiate earlier agreements – or at the extreme, speculation of a Greek exit from the Eurozone. For now, however, EURUSD is drawing support from the lingering threat of further Fed easing that is weighing on the US dollar, heavily skewed market positioning, and a recognition that the anti-austerity vote in Greece does not imply an antieuro vote. Renewed risk aversion should ultimately be more evident in general yen strength not to mention a more vulnerable Australian dollar. AUDUSD did indeed struggle overnight weighed down by third successive trade deficit which again was wider than expected. We are more concerned about the currency-negative implications of today’s federal budget however given Australia’s Treasurer Swan has made his intentions very clear. He intends to continue his drive to register a fiscal surplus next year and this will provide as much room as possible for the RBA to ease in order to offset the fiscal drag. The Australian employment data and Chinese banklending/export figures due out later this week are unlikely to offer much comfort for the Australian dollar either.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank