U.S. Dollar Trading (USD) the positive feel for the EUR/USD after the Greek elections failed to hold even the European trading session as Spanish Debt continued to trade above the key 7% level. The 7% level is seen a rate that countries can no longer finance government debt at a sustainable pace. The G20 meetings and have offered token amounts to increase the IMF warchest but markets are looking for the ECB to provide real short term support. Looking ahead, May Housing starts are forecast at 0.72mn vs. 0.717mn previously. Also May Building permits forecast at 0.728mn vs. 0.723mn previously. G20 meetings also continuing today.
The Euro (EUR) traded in a 200 pip range from 1.2750 to 1.2550 with the failure of the Spanish bonds to drop back from fresh debt crisis highs. The market is hoping some sort of ECB action will be able to put a more permanent lid on the crisis but the political climate in EU powerhouse Germany is making it hard for fresh ideas to gain traction. Indeed Chancellor Merkal has warned Greece that it will not get easier terms for bailout funds.
The Japanese Yen (JPY) USD/JPY was dragged lower by heavy EUR/JPY selling and ended under the Y79 level with the chance of QE3 not entirely off the table at Wednesday’s FOMC meeting given the ongoing European debt crisis. No change in FOMC policy may enable the USD/JPY to test Y80.
The Sterling (GBP) was on the backfoot as the EUR/USD losses mounted but the GBD/USD stood up well supported by fresh EUR/GBP selling. EUR/GBP closed just above 0.8000 and a break below may see the cross trade towards 0.7800. The market has been selling for a few months but the support at 0.8000 has proven too solid so far. Looking ahead, May CPI forecast at 0.1% vs. 0.6% previously. Also May Retail Price index forecast at 0.2% vs. 0.7% previously.
Australian Dollar (AUD) was able to hold onto most of the gains from the Greece election rally in Asia yesterday with traders selling the EUR/AUD rather then selling AUD/USD when the EUR/USD fell so heavily. UPDATE RBA minutes suggest future rate cuts are less likely as local economic data remains strong and the recent cuts were mainly to protect from the European Crisis downside risks.
Oil & Gold (XAU) Gold held onto gains as well with European Bonds under pressure helping investor demand for alternative investments. OIL/USD was under pressure reversing early gains with the market still unsure on Oil demand and direction given the turmoil in Europe. Support was seen at $83 a barrel.