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Tuesday 7 June 2011

Currency Exchange News

Euro: When we left the euro this past Friday it seemed that a temporary fix was in place to the immediate crisis involving Greece’s funding issues. The market is not naïve enough to expect a genuine fix to the extreme finan¬cial burden the economy faces against the backdrop of a pained economy but a short-term resolution means industrious traders can take advantage of the shared currency’s relatively high yield not to mention the heavy-handed government investment. Yet, with the new week comes new doubts. German CDU/CSU floor leader Kauder contradicted the suggestion of a unanimous agreement on a second round Greece bailout. What is far more worrying though was rating agency Fitch’s warning that even a voluntary agreement to accept the bond rollover proposal would constitute a technical default if the terms are worse.

Dollar: The economic docket for the opening trading day of the new week was light for the US dollar; but there aren’t many specific indicators that can meaningfully shift the currency’s bearing anyway. Far more important are the larger fundamental themes and that is exactly what was nudging the greenback Monday. Looking to the Dow Jones FXCM Dollar Index, the currency put in for a modest advance after more progressive declines on the previous Thursday and Friday. The nature of this move is corrective as was the positive performance through the first half of last week following the 2 percent drop that preceded it. What this tells us is the market is not yet ready to get behind the dollar’s recovery whether its counterpart be core currencies which are still ad¬vancing against the dollar, fellow safe havens also still gaining ground on the greenback or commodity bloc members who have weakened recently. There is reason to believe a bigger shift for the dollar is just beginning. If we had to identify the most influential, potential fundamental driver for the dollar for immediate impact as well as durability it would undoubtedly be a shift in US rates. Even the interest in the withdrawal of austerity and a slow return to rate hikes for the US traces back to risk appetite trends. A rise in rates moves the dollar up the yield spectrum, not necessarily putting it amongst the high yield group

• The RBA left rates on hold overnight even though there was a 17 percent probability of a quarter point move priced into overnight index swaps which means someone has come out surprised. The highlight is not in the rate decision itself but rather the statement that follows it. A more neutral tone following the 1Q contraction could hurt the Aussie.

Source:Rook International

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