It’s Official!

Today Greece officially asked the EU and IMF to activate the aid package/bailout to help Greece meet its debt obligations.  This now puts the ball in the court of the EU, in its first real test of structural stability.  As a result, the Euro is actually higher coming off one-year lows, bouncing just higher off the psychological support at 1.32 vs. USD I identified earlier this week.

Surprisingly, this is not a total risk-aversion day, as we have some mixed currencies which seem to be trading on individual fundamentals.  In Canada, inflation figures came in lower than expected prompting the Loonie to be lower; and in Australia the central bank honcho was taking down the Aussie.

GDP figures came in lighter than expected in the UK, and in the US durable goods orders were higher ex transportation.  New home sales figures are due out later this morning.

Meanwhile, the G-20 meetings taking place in Washington have been occupied with 2 major world themes—the bailout of Greece and Chinese Yuan appreciation.  While the former is now firmly in the hands of the EU and IMF, the latter situation is picking up steam as global support for a stronger Yuan is growing.

In the forex market:

Aussie (AUD):   The Aussie is lower this morning as RBA Governor Stevens said that interest rates are “close to average”,  causing the market to speculate that they won’t raise interest rates the next time around.   Also, Chinese Yuan appreciation has to be on the mind of traders as the any slowing of the Chinese economy will affect Australia the most.

Loonie (CAD):   The Loonie is lower this morning as inflation figures came in lower than expected.  The CPI figure came in at 1.4% vs. 1.6% the previous month.  In addition, retail sales figures came in at .5% which was mildly disappointing.  Add in a decline in crude oil prices and you have a recipe for a lower Loonie.

Kiwi (NZD):   The Kiwi is higher again this morning in a continuation of yesterday’s statement about economic growth.  Despite there being some risk in the market, the Kiwi is up against all but USD.

Euro (EUR):   First the good news: German business confidence is near a two-year high.  The bad news: Greece is tapping into the bailout plan.  But is this news actually bad?  Well so far this morning, the market doesn’t think so.  In fact, this news helped halt the decline of the Euro and could prove to be positive if the bailout can be successfully implemented.  While there still is some major risk on this last point, for now the market believes.  Stay tuned.

Pound (GBP):   The Pound is mixed this morning as it is lower (but there are other currencies faring worse) on less than expected GDP figures.  First quarter GDP came in at .2% vs. an expectation of .4%.  This also provides uncertainty going into the May 6th elections, which may cause the Pound to pullback from a decent, recent rally.

Dollar (USD):   The US dollar is higher this morning as durable goods orders came in much higher than expected ex-transportation showing signs that economic recovery may be improving.  The dollar is also receiving some support from the flight to safety trade as Japanese yen weakness has encouraged buying.  New home sales are due later in the morning and a good reading may be reason for a reversal, though with the global risk out there it will be hard for risk-taking to gain traction going into the weekend.

Yen (JPY):   The Yen is lower this morning despite the moderate risk themes in the market.  As I mentioned the other day, the wishful thinking of the Japanese finance minister to have an inflation target rather than a non-deflation target was misguided, though economic projections may cause the BOJ to cave in and expand stimulus measures.

The market is reacting favorable (for now) to what might finally be the final act in the Greek drama/comedy/tragedy that has had a stranglehold over the Euro for the past few months.  The key for the Euro will be for the successful implementation of the bailout while at the same time preventing contagion to the other PIIGS countries that may be waiting in the wings.

Meanwhile, economic news out of individual countries show how quickly the mood can change from a belief that economic recovery may be happening quickly to a more subdued assessment.

And therein lies the beauty of the forex market: that there is always something happening that will cause markets to move.  When markets move, there is opportunity.  And with opportunity comes potential profits!

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