Optimism Waning As We End The Week

Yesterday’s optimism which lifted risk assets
including equity markets seems to waning. It’s been another difficult week in
Euroland, and we are still no nearer to getting any sort of resolution to the
Greek problem. In fact, after a week where Greece managed to keep off the front
pages, the next few weeks will probably see the Hellenic republic back in the
spotlight as we build towards a second election on June 17. Syriza, the
left-wing anti-austerity party, remain front runners and the fear that Greece
would leave the Euro once a new Government is elected is continuing to drive
large scale withdrawals from the Greek banking system. European politicians
will announce a capital injection shortly to shore up the ailing Greek banks,
but it is now becoming clear as we’re approaching the point where support for
further bail-out funds (official or emergency like the Bank funds) is
decreasing rapidly.

With Euro sentiment remaining depressed, the
UK GDP
number coming in slightly lower than expected received much less attention than
it would in normal market conditions. After the announcement yesterday morning,
Sterling remains locked in different paths against the Euro and Dollar, as the
EUR/USD continues to absorb a large amount of the safe-haven, negative Euro
sentiment and looks set to continue to fall. 1.25 still looks to be the key
level, with barrier option interest set to be heavily defended into the
weekend.

Durable goods orders from the US came in
exactly as forecast, rising 0.2% in April. The lack of any surprise kept the
Dollar from advancing too much against its main trading partners. But the
Dollar remains the best performing currency of the last two weeks and will hang
on to that crown as long as the large amount of uncertainty hangs over the
markets.

Report by Alistair Cotton