EURUSD Lifts In Asian Trade Helped By A More Positive Outlook For Greek Election

• EURUSD lifts in Asian trade as news of all the weekend’s Greek opinion polls show pro EUR party in the lead
• Gold lifts as US currency slips back in Asian trade and JPY strengthens
• EURGBP edges higher helped by more positive outlook for Greek election
• SNB threatens use of capital controls to curb CHF strength if EUR breaks up
• EURUSD lifts above 1.2620 in early trade as better move sees light stops triggered above the level
• European equity markets rise on opening as USD slips back and gold moves above $1680
• Spanish yields actually rise again this morning despite European equities rising

Good morning. On Friday the EURUSD closed at its lowest level for the year ending the US session at 1.2517. That was underneath the previous day’s close at 1.2532, but it could be reversed today if the upside momentum seen overnight is continued throughout the session. As I write this update the EURUSD is trading back above 1.2600 ahead of the London opening.

Today is Whit Monday, so many European financial centres will be closed as well as the US, which is celebrating Memorial day today. Therefore today the US, France, Germany, Holland, Italy and Switzerland and others will be absent from the market.

That might lead to very thin conditions later and has no doubt contributed to the short covering overnight. Therefore there will be no economic releases out today and little on the calendar tomorrow. The main releases of the week are the US revision to Q1 GDP and May payroll report on Friday.

The better risk on environment overnight has also helped the AUD recover across the board as short covering kicks in. As the EUR, JPY and AUD all gain overnight it’s the US currency that has fared the worst as the USD Index falls back underneath 82.00 in very early European trade.

However, the moves in Asian equities are hardly stellar as the Nikkei closes barely higher on the day and the rest of the Asian equities post very modest gains on the session.

Overnight the EURCHF has spiked again but only by a very modest 25 pips as further comments from Swiss officials seek to deter fresh selling on the EURCHF. As we know the SNB is desperate to halt the ever growing tide of selling that saw the price trade as low as 1.2006 late in the session in the US on Friday, with some pretty significant names seen undertaking the action. Well that doesn’t look very clever now as the price continues to hold the 1.2000 peg but the worry for the Swiss and SNB authorities is the possible tide of selling that could impact the cross on any breakup of the EUR. To that end they have made several comments overnight, including the possibility of introducing capital controls to curb any gains in the currency. The other idea being pulled is a tax on overseas deposits held in Switzerland and the seemingly less likelihood of negative interest rates.

The moves overnight in the EUR and the USD seem to have been sparked by the release of 6 opinion polls in Greece, all showing the New Democracy party in the lead. The New Democracy party supports the EUR and the EU bailout plan. Well if I put my cynical hat on I’d be very tempted to treat these with a pinch of salt. The Greek’s ability to cook the books makes me very weary of believing anything from that arena at the moment. Nevertheless the news as provided the necessary backdrop for a bout of profit taking on the EUR as well as other risk based currencies.

Later in the week we do have the potentially significant decision from the Irish as they decide on whether or not to ratify the European Fiscal Compact. The prospects of a negative outcome here are live on 31/5- more on this tomorrow.

Returning to the EURUSD, the move lower in late trading on Friday afternoon was helped by comments from the Spanish Catalonian regional government, that it was effectively running out of money and was due to seek assistance for further funding from the Madrid government. Those comments were not greeted well and the Spanish 10 year yield jumped to over 6.3% and kept pressure on the EURUSD and EURGBP for the rest of the session. The news that troubled Spanish lender Bankia was to seek a further EUR 19 billion in capital from the government was also a reason for further risk off concern as the week drew to a close.

Earlier in the session a significant barrier at 1.2500 was removed as the price traded very briefly to 1.2496, a number of European central banks were reportedly seen buying EURUSD just above the lows. I would also suggest that the hand of the SNB may have been seen as well although I cannot confirm that. As I said last week, we will most likely have to wait until 7th June before we see their latest reserve figures for May. Personally I think that the SNB activity in buying EURCHF aggressively at or around 1.2010 has been one reason why the EURUSD has held up quite well because once again the latest CFTC data released on Friday shows another increase in overall EUR net short positions.

This morning the mood shift resultant upon the Greek opinion poll results has helped the EURUSD lift back above 1.2600, triggering some stop losses on short positions above 1.2620, but notwithstanding that there is said to be more offers through 1.2625 to the 1.2640. Clearly a closing level today above 1.2625 would be an interim positive signal for the single currency. The news from Greece is extremely flimsy as I said earlier but that is providing the necessary environment for a countertrend rally in the EUR. Just how far that will run is hard to say in such a low volume market due to lack of participants today.

Overall no matter what happens in Greece the elephant in the room is most definitely Spain in my opinion and as far as I can tell the developments there look equally worrying. I am not alone in that view and all the information that is coming through on the Spanish economy is really dire. Despite the better mood today the European bond spreads look little changed from last week and Spanish yields are actually rising in early trade from last week’s closing levels. However the more benign market this morning is helping the European equity markets open with solid gains as Gold trades through $1680. Therefore there is clearly some divergence there that will mean a shift in one direction or the other by the close today.

EURGBP is flipping between 0.8050 and 0.7975 in recent sessions. The move higher on Friday to the upper end of that range but once again that move petered out as it ran onto to some serious offers said to lie around 0.8060. The move up this morning has so far failed to break above the high seen on Friday and no matter what any pundits say regarding the potential fallout for the UK economy resultant of a Greek departure, the hot money is still headed to our shores; there is no doubt about that and unless there’s any significant change in the environment that looks set to continue.