Greece possibly leaving the Euro

Greece remains the focal point of investor sentiment and risk is suffering as a result. Greek Prime Minister Papandreou is not backing down with his plan to hold a confidence vote in Parliament on Friday and the referendum on the proposed austerity measures later in the year. Even some members of his own government have vocalised their opposition, with one party member resigning. Judging by the last confidence vote and subsequent austerity package vote, those expressing their opposition seem to be more concerned with the rescue package and we expect that most of them could still vote in the governments favour during the confidence vote, possibly enabling them to hold their 152/300 majority.

Papandreou further compounded the situation by announcing that he intends to hold another referendum, this time on Greek’s Euro membership sending the Aussie around 40 pips lower. However, we note that recent poles still point towards Greek citizens preferring to stay with the Euro and that instead their grievances likely lie with their leaders. However, if these referendums pass it could cast doubt over the entire European debt contagion plan.

The overnight risk sell-off somewhat stabilised during the Asian session. We saw EURUSD bounce off last night’s lows before retracting to around 1.3700. In equities the Nikkei, ASX200 and Hang Seng are all down at the time of writing around 2%, 1.4%, and 1.5%, respectively; with banks leading the decline in Australia after the rate decision yesterday put more pressure on their bottom line.

In other news, the Aussie was sent roughly 20pips lower on the back of appalling building approval figures out of Australia with official figures showing approvals declined 13.6% for September versus a forecast decline of 4.6% and a previous increase of 10.7%. Elsewhere, better October Japanese monetary base numbers failed to turn the market’s attention away from Monday’s intervention – coming in at 17% against a previous 16.7% and JPY remains around the low 78 region against USD.

Investor attention will now likely shift to Wednesday’s G20 meeting and Feb Chairman Bernanke’s third post FOMC press confidence from which markets will be keenly looking out for any hint of QE3. The meeting of G20 leaders will be closely watched for signs of possible Chinese investment in Europe; if this materializes, it should significantly boost sentiment.

Source: Forex.com

02.11.2011