Forex report: Euro weaker but steady

Friday’s fall in the euro to $1.3202 was painful enough to inspire a rebound sufficient to reverse course for only the first day in seven. Today’s pullback marks the seventh drop in eight sessions for the single European currency as investors worry about the reality of aid for Greece from its European partners after its formal request last week.

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Euro – The single currency has lost half a cent to $1.3325 as investors digest the flurry of news and analysis from over the weekend. While the gates of assistance may have been opened for the nation of Greece, so far it’s proving to be a mere trickle of aid as investors ponder the likelihood of individual governments over riding the EU promise of up to €30 billion of aid.

Holding his back firmly against the gate is the German Finance Minister who told the Bild newspaper in a Sunday interview that decisions lie in the balance meaning that the outcome was unassured and could therefore go either way. The market continues to maintain a weak bias for the euro so long as the uncertainty prevails. Meanwhile his Greek counterpart warned investors banking on a sovereign default would lose their shirts.

Japanese yen –The brief bout of risk aversion accompanying the escalating drama of the Greek crisis has blown over as far as a relief rally for the Japanese yen is concerned. Last Monday morning saw the yen rally to ¥91.98 marking the peak of its strength last week. As Asian equity markets rallied in the face of deeper Eurozone woes this morning the yen has once again lost its appeal and has resumed its weaker bias to stand at ¥94.13. Several regional currencies continued to strengthen versus the dollar to near 19-month highs as the recovery makes its presence felt through escalating stock prices.

U.S. Dollar – Its gains against both the euro and yen – the two largest trading partners of the United States – are enough to keep the dollar index in the black to start the week in which new home sale statistics and a Fed meeting are on the agenda.

Aussie dollar – The China Business newspaper predicted a likely August timeline for the official announcement of a repeat stimulus package of an equivalent $586 billion to ensure the economic recovery stays on track. And while the domestic and regional economies continue to grow, the residual fear remains that western economies will remain a drag in the light of a casual consumer rebound. The Aussie unit being well-linked to the fortunes of the emerging Chinese economy maintained its strength against the greenback today and rose to 93.08 U.S. cents.

Canadian dollar –Now that the news of the SEC’s suit against Goldman Sachs coupled to the ongoing risks associated with Greek survival within the EU have been disseminated across the markets, the Canadian dollar’s strength appears to be coming back to the fore. During the last week the Canadian dollar sank from parity to 97.90 U.S. cents but has since rebounded to $1.0007. In fact during the week it only closed below par on one occasion. Expectations were fed at last week’s Bank of Canada meeting in which the Bank raised its tone, removed some content and put a June rate rise on the agenda. Investors are finding more reasons all the time to buy the local dollar.

British pound – With the national election just a week or so away investors are feeling less blue over the prospects for the pound, which today is firmer against the dollar at $1.5470. Even though the political risks have risen on account of the sudden ascent of the Liberal Democrat party in the polls, the fact that economic recovery is firming at every turn is providing more of a lift than the prospect of fiscal freeze under a hung parliament. News today from the Nationwide Building Society reported a 0.4% rise in home prices across the country for April and a 9.7% recovery from one year ago. The pound also made further ground against the beleagured euro, which fell to buy 86.22 pence.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers. ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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