Greece Caught Between the IMF and a Hard Place

Whenever the IMF is involved there will be a bitter pill to swallow by the aid receiving country as they will have to reduce their spending. Greek citizens are now protesting some of the decisions before the aid is asked for as it will mean more austerity for them. Workers have begun a strike as the talks with IMF and EU officials continue.

Greece has begun talks with the International Monetary Fund and the European Commission over the terms of the aid package. The biggest question is not if Greece needs it, which it does, but rather when will they need it the most to ask for it. The IMF has stern terms on its loans and in the next ten days along with Greece and the EC they must reach the conditions and interest rates that will apply to the bailout. The offer on the table is for 40bn Euros (30bn from the EU and 10bn from the IMF).

The US$ is weaker in the O/N trading session. Currently it is lower against 10 of the most actively traded currencies in a ‘whippy’ trading range. The USD$ is lower against the EUR 0.13%, , JPY 0.17%, GBP 0.18%, CHF 0.20%. The commodity currencies are a stronger this morning, CAD +0.28%% and AUD +0.12%%. The loonie appreciated after the Central Bank dropped its commitment to not move on rates, which signals an upcoming rate increase. The market expects the RBA to increase rates in their next meeting in May this coupled with the positive corporate earnings reports have boosted the AUD as the speculation of economic recovery continues (0.9266).

Forex heatmap

Crude is lower in the O/N session ($83.22 down -46c). Inventories unexpectedly increased this week by 1.9 million barrels after it was forecasted that they would be reduced by 3.6million. The crude rally is being threatened by OPEC members breaking the agreed production quotas. This coupled with the lower demand for oil. OECD nations have decreased their demand 8% compared to 2006 numbers. US Dollar strength has put downward pressure on oil as the Greek tragedy has a new player in Goldman. The combination of US Dollar strength and US growth weakness paints a negative picture for crude demand.

Equities gave Gold a boost after the metal had touched a two week low earlier last week to offset the effects of Goldman and Greece. Inflation signs around the globe have given Gold ($1,143) some of its luster back as an inflation hedge as the USD$ weakens . Palladium continues its climb at this morning it reached a new two year record level as there is a growing demand from automakers in China.

The Nikkei closed at 10,949 down -140. The DAX index in Europe was at 6,178 down -52; the FTSE (UK) currently is 5,681 down -42 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.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza