Tuesday, June 19, 2012
Over the weekend, Greece’s Pro-Bailout New Democracy Party claimed a very narrow victory over the Syriza Party, which removed fears of a potential Greek exit from the Eurozone and caused the euro to gap higher & rally briefly on investor confidence. However, the Greek inspired relief rally was short-lived due to disturbing news coming out of the Spanish Banking Sector & their bad loans, which caused the Spanish 10-Yr bond yield to break above the crucial 7.00% level. Since Spanish borrowing costs for 10-Yr paper are at an unsustainable level, this puts into question Spain's ability to fund itself. Unfortunately, this news caused the market to shift from being Greek focused, to now being Spain focused and prior optimism had quickly shifted to market uncertainty as we began to see the EUR/USD weaken, despite the hopeful outcome of the Greek election.
During today's webinar, we discussed the current price action for the EUR/USD pair and the reasons for the random & whippy nature of price for the euro instrument. Today's trading session had been marked by very thin & illiquid trading environment, which may continue until there is more clarity regarding Spain & the euro crisis as a whole. There were rumors about ECB intervention in the Spanish bond market & Middle Eastern Central Bank Buying of EUR/USD that kept the Euro propped after the disappointing German ZEW data, which slumped to a 14 year low at -16.9, much lower than the previous month’s value of 10.8.
Thursday, June 14, 2012
During most of today's trading session, the EUR/USD pair has been moving within a tight range ahead of Sunday's Greek Election. This price behavior further indicates the overall uncertainty & concern many investors have about the future of the Eurozone. Yields in the Spanish 10-Yr Bond have climbed throughout the trading day in response to last night's credit rating downgrade of Spanish Debt, 3-notches lower, by Moody. Spanish yields reached a euro-area record high of close to 7% for 10 -yr debt, which is an unsustainable level for the sovereign & brings to question the nation's ability to fund itself. Many institutions & bond funds are not allowed to hold debt at a lower credit rating and they were forced to sell their bond holdings after the downgrade, which caused borrowing costs for Spanish 10-Yr Paper to rise. In the past, when sovereign yields broke above 7%, there was an immediate need for an EU-IMF bailout for that country.
During today's webinar, we discussed the price action for the EUR/USD pair and how it was much different compared to other asset classes, like equities & commodities. Other markets showed signs of risk aversion as investors began to move towards safer harbours. However, in the currency market, price reacted differently and the EUR/USD was contained within a 52 pip range despite the negative news coming out of Spain. This proves that investors are choosing to sit on the sideline & wait to hear the outcome of the Greek Elections over the weekend before they place a position in the euro.