Ralph Shell @ 2:16 PM, Thursday May 06 2010
The ungrateful Greeks showed their true feeling about the proposed €110B bail out, by massive, destructive, riots in the streets. Pictures of the destruction made the global TV airways, certainly of interest in Germany where they will soon vote on the proposal to transfer over €1000 per person from the thrifty Germans to the pampered Greek civil servants. Part of today's euro weakness may be anticipation that the Germans are not real fond of this give away, and the bail out proposal may collapse. Perhaps if the Greeks threw in ownership of a few warm, sunny islands this might sweeten the deal.
How much of the collapse of the euro been priced into the market? During the past three days the open interest of euro futures at the CME has gone up over 31,000 contracts, and the OI in the last COT reporting period was up over 53,000 contracts. There are certainly a lot of new euro bears, but the Northern Europe leaders and bankers seem to lack leadership and resolve, which allows the turmoil to continue, leaving the Greek's in charge of the euro's fate.
Currently the dollar has benefited from the plight of the euro, but as Larry Kudlow in an opinion piece, in Real Clear Politics entitled A Spend-and-Borrow Debt Mess suggested, that day may end.
"And just like Greece, U.S. government union-worker benefits, which run 50 percent above private-sector equivalents, are bankrupting federal, state and local budgets. They're also spawning a massive voter revolt against big-government debt that will bear fruit this November in the tea-party midterm elections.
Indeed, the debt follies of Europe and the bankruptcy of the European entitlement state should be a lesson for Barack Obama's Washington, where overspending and borrowing have reached absurdly grand heights. As a share of gross domestic product, U.S. debt is projected to move toward 100 percent in the wake of the new Obamacare entitlements. That's near the 125 percent debt ratio of Greece.
Call it a spend-and-borrow debt mess. A pox on all your houses, at least until financial-market and voter discipline force the dimwitted politicians to radically change course."
Currently the British and German elections are the major market interests. Black Tuesday proved to be a warning there was more to come. With oil and global equity markets on the defensive, investors have been turning to the USD and US Treasuries, as well as the perceived safety of the yen.
After the three day Japanese holiday it looks like the yen played catch up today, as traders short the yen on crosses had an abrupt end to those trades. While we think there may be some opportunity to fade today's moves, we must remember markets go too high and too low. There will be a turn around coming, but with unsettled election results in England and tomorrow's German election, it is probably best to patiently stay on the sidelines.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.