Grind Lower Continues
The grind lower in the euro continued on Monday, while risk assets were generally under pressure. The Australian dollar dipped below parity for the first time this year despite China’s weekend RRR cut. Ongoing concerns about Chinese growth continue to weigh on AUDUSD, and political stalemate in Greece is not helping either as the prospect of a reelection continues to undermine global risk appetite. EURUSD will remain sensitive to political developments in Greece. President Papoulias began a first round of talks with party leaders on Sunday with the aim of forming a unity government, however no breakthroughs were made. Although talks are scheduled to continue at 1630GMT on Monday it seems to us that a fresh election on either June 10 or June 17 still seems the most likely outcome. Meanwhile, the latest opinion polls show the SYRIZA party, which is staunchly opposed to the current bailout deal, still boasting the highest support. In the European session on Monday, the euro got a slight boost when SYRIZA said it will be part of talks where all political parties, except the far-right, participate, though the broader trend remains skewed towards selling with equities under pressure and periphery spreads to Germany widening throughout the day.
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UBS Investment Bank