EUR USD (1.2680) The Greek electorate’s desire to remain in the eurozone is now being reflected in the latest polls of voting intention. Parties supporting the international bailout would be able to form a coalition government according to the latest survey, but the market did not see this as positive. Instead, investors seemed to have sided with the likes of Nouriel Roubini who believes a Greek exit would be the fastest way for the country to regain competitiveness. Other countries too seem to want to adhere to their austerity policies. In the UK, for instance, despite the double-dip recession, David Cameron told business leaders yesterday that the government would not waver from its tough fiscal plan. In fact, from London to Lisbon, the ‘Greek’ effect’ has not been a recognition that austerity policies seemed to have failed, but rather a determination to escape the debt burden as soon as possible in order not to end up like Greece. The pro-growth message that emerged after the election of French President Hollande appears to have evaporated already. So, investors seem to be pricing in the prospect of a ‘lost decade’ of austerity and flat growth. And this seems to be the best case. In the worst case, the prospect of a banking crisis waits in the wings. The euro has all but satisfied the near-term risk to 1.2660. Below there it would stretch its decline even further to 1.2490, the next best demand level. Overhead reliable points are similarly absent; we expect the best to stand at 1.2790 and then at 1.2940.
Click here to read the full report: Daily forex 05.18.12
Deutsche Bank