After a week of very volatile trade, the EUR/USD was exceedingly quiet in Asian and early European dealing today trading either side of the 1.3800 figure as markets awaited the US NFP results due at 12:30 GMT as well as the latest developments on the Greek no confidence vote scheduled for later in the day. The pair did rally towards the 1.3850 area when a draft of the G20 draft surfaced suggesting that the summit is now focusing on using the IMF as key funding source for troubled member nations.
The Europeans have been unable to attract investment interest in EFSF from emerging market nations like China which faces a lot of political resistance at allocating it surplus capital toward bailout funds for Europe. However, a more neutral organization such as the IMF may be a more palatable choice for all parties involved and may evolve as the principal actor in managing the credit crisis going forward.
The latest speculation from Greece is that Prime Minister Papandreou will step down from his post irrespective of the results of today’s no confidence vote. However, the two main parties in Greek Parliament are expected to ratify the EU bailout agreement struck in Brussels last week paving the way for EU and IMF to provide the sixth tranche of funds to Greece before it runs out of funds by the start of next month.
While the situation in Greece remains fluid and may yet again become volatile as politicians jockey for position, the markets are operating under the assumption that the Greek bailout deal will go through thus avoiding the prospect of a disorderly bankruptcy and a possible currency crisis in the Eurozone.
Meanwhile on the economic front the data in the EZ continued to deteriorate with the final reading for the EZ PMI Services sector printing at 46.1 versus 49.1 the period prior. The news was dour all across the board with German data at 50.6 French data posting a very sharp drop to 44.6 and Italian PMI numbers sinking to 43.9. This was the worst reading in more than 2 years and suggests that EZ headed straight into a recession which will only exacerbate the credit problems plaguing the region.
In North American today the focus turns to the NFP report with markets anticipating a print of 100K and no change in the unemployment rate at 9.1%. Preliminary data has been relatively good with the employment subcomponent of ISM services rising more than 4 points in yesterday’s report. If the data does surprise to the upside it could provide further boost to risk although the most positive impact will likely be in AUD/USD rather than EUR/USD as traders await the resolution of the Greek drama.
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