Today, there are again few important eco data on the calendar in Europe. In the US, the import prices, the March trade data and the jobless claims will be published. The jobless claims have most market moving potential. A better figure might be slightly supportive for the dollar.
However, the focus will stay on Europe. Some smaller sources of uncertainty are out of the way (Bankia, EFSF payment to Greece). However, the big debate whether or not Greece will comply with the EU/IMF programme will continue. This issue is closely linked to the question whether or not Greece will stay in the euro. For now, there is no perspective at all that this issue will be out of the way anytime soon.
However, in the current environment of high uncertainty, any upticks will probably still be used to reduce euro long exposure. So, the topside in this cross rate will probably remain difficult. We maintain our EUR/USD short position. EUR/USD changed hands in the 1.2980 area at the open of the European markets.
European equities tried to regain part of Tuesday losses early in the day, but the move flattered very soon as any uptick was still used to sell European risk. EUR/USD failed to regain the 1.30 level and turned south again.
During the day, there were several headlines from German and other European policymakers stressing that Greece should comply with the terms of the bailout programme. German Foreign Minister Westerwelle reiterated that Greece will not receive further aid under the planned bail-out plan unless it continues with reforms.
The minister also said that it was in Greece’s own hands whether it actually remains in euro zone. Germany Finance Minister Schaeuble joined the same chorus. This kind of rhetoric is very far away from the politically correct talk that came from EMU policymakers until recently, saying that an exit from any country from the euro zone was “unthinkable”.
One is getting the impression that some policymakers are preparing the unthinkable might become inevitable at some point in the future. EUR/USD dropped below the 1.2955 range bottom early in US trading, but even this high profile break didn’t cause any acceleration in the sell-off.
As usual in this context of high uncertainty, markets were spooked by all kinds of headlines/rumors (e.g. that the Troika would not go the Greece).
At the same time, there was also a lot of uncertainty on the situation of the financial sector in Spain. After the close of the market, Spain announced a partial nationalization of Bankia. Later in the session, the EFSF confirmed a payment of €5.2 bln to Greece. This eased some tensions on global markets, but it was hardly any support for the single currency.
Given the harsh comments on Greece, the decline of the euro can still be considered as very orderly. EUR/USD closed the session at 1.2929, compared to 1.3005.