The JPY and the USD were the clear winners in the O/N session as the speculation that Greece will be forced to activate its rescue package has triggered risk aversion in the market. The Greek Prime MInister asked for a meeting with EU and IMF officials starting April 19th. While this meeting is taking place a group of German Professors prepare their plan to sue the EU if they Greek bailout is paid. Their argument is that this aid package violates the no-bailout clause of the EU treaty. It is worth mentioning that this same group of professors sued the German government in 1998 over the country’s entry into the Euro.
Morgan Stanley has outlined that if this trend of fiscal irresponsibility forces more countries into asking for EU aid Germany may opt out of the eurozone. The Bundesbank Germany’s Central Bank has always been known for its inflation adversity and the reason for its concern over bailing out member countries as this would reduce the value of public debt and create a higher inflation.
The US$ is stronger in the O/N trading session. Currently it is higher against 10 of the 16 most actively traded currencies in a Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ trading range. The USD$ is higher against the EUR -0.33%, CHF -0.25%, GBP -0.53%. The commodity currencies are a mixed this morning, CAD +0.11% and AUD -0.24%. The market should expect the AUD to remain better bid on any pull backs (0.9321).
Crude is lower in the O/N session ($84.56 down -95c). US Dollar strength has put downward pressure on oil, even after the EIA report pointed to a decrease of 2.2 million barrels in this week’s inventories. The combination of US Dollar strength and US Economic weakness paint a negative picture for crude demand. Technical analysts have their eye on $90 by year end.
Commodities prices could fall if the USD continues to find a foothold. Gold would lose its alternative investment status if the dollar continues its rebound USD$ ($1,156). Platinum and palladium have outperformed Gold as jewelry demand and Chinese auto industry demand have picked up. Yuan revaluation is also expected to boost gold as its price would become more attractive to Chinese buyers of the metal.
The Nikkei closed at 11,102 down -171. The DAX index in Europe was at 6,285 down -5; the FTSE (UK) currently is 5,815 down -9 The early call for the open of key US indices is lower.
Note: Dean will be away traveling for the next two week’s and will return to publication on April 29th.
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