Greenback Bounces Back

Currencies Direct June 27th 2011 - 2 minute read

Risk aversion
is back on the menu with continued doubts over Greece and uncertainties about
weaker economic data weigh heavily on market sentiment. A number of key events
rather than headline data will be the main drivers this week. First on the
agenda is the vote in the Greek parliament on the country’s budget reform plan,
which if approved will pave the way for the way for a pay-out of EUR 12 billion
from the EU/IMF and a complete new bailout agreement.

 

Stateside and
talks on raising the debt ceiling are likely to recommence, with the market
likely to become increasingly nervous about the lack of agreement on the issue.
However, it is Europe that will be under the
spot light and even if the restructuring plan is passed any market support is expected
to be limited given the ongoing qualm about private sector contribution in any
Greek debt roll over. This suggests that the EUR will remain under pressure
over the week despite supportive comments from Chinese Premier Wen.

 

Data releases
will be relegated to background noise but what there is will not help
sentiment. Indications of slowing activity remain apparent as revealed in
disappointing eurozone manufacturing surveys last week and this could be
repeated in the US ISM manufacturing survey later this week. Economic sentiment
gauges in Europe are also set to reveal a
decline. Given the lack of fire power and/or unwillingness to risk using
further stimulus from the Fed, the sensitivity of markets to weak data will be
high, keeping risk aversion elevated.

 

Without a doubt,
the end of the Fed’s QE2 this week will mark a major shift in market dynamics,
especially in currency markets where the USD will finally see a massive weight
lifted from its shoulders. As indicated by Fed Chairman Bernanke following the
FOMC meeting the Fed is not allowing for a further round of asset purchases, a
fact that will help the USD to find firmer support.

 

Report by Philip Ryan

 

Written by
Currencies Direct

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