(As written for My Paper on 19 June 2012. Click here to enlarge)
On 6th May, Greece was left with a political stalemate after the general election. This led to another election which took place over the weekend. Yesterday, official projections showed that pro-bailout parties won enough seats to control Greece’s parliament.
There were basically three honchos which led the pack – the New Democracy, Pasok and Syriza.
The New Democracy won 29.8 percent of the vote and secured 129 seats in Greece’s legislature. Anti-bailout party Syriza gained 26.8 percent and 71 seats, while socialist Pasok, with 12.4 percent, gained 33 seats.
This means that the New Democracy and Pasok parties took a total of 162 seats in the 300-member parliament and will most likely form a coalition for the new government.
According to the official projection by the Interior Ministry in Athens, a total of 95 percent of the votes had been counted. The results also eased concerns that Syriza party chief, Alex Tsipras would take control of the Greek government and reject austerity measures needed to qualify for international aid.
Antonis Samaras, the leader of the conservative New Democracy party, pledged to honour Greece’s commitments but says he wants to ease the terms of an unpopular EU-IMF bailout deal which has imposed harsh austerity on many Greeks in return for a multi-billion rescue package.
Already in its fifth year of recession, Greece has a huge mountain to climb – new government or not. Its current debt level stands at 266 billion Euros, of which about 194 billion Euros, or 73 percent, is held by the European Central Bank (ECB), Euro-area governments and the IMF.
In March, Greece completed the largest bond restructuring in history, as holders wrote off more than 100 billion Euros of debt. Although the bond haircut was a significant milestone, Greece’s current debt to GDP ratio is still about 120%.
Amidst the tension and frustration surrounding Greece, markets reacted positively. On Monday’s opening, EUR/USD gapped up 40 pips to open at 1.2695. Data from the Washington-based Commodity Futures Trading Commission also showed that hedge funds and other large speculators reduced short EUR/USD trades from a record high in the previous week.
“Net Short” EUR/USD contracts dropped about 20,000 – from 214,418 the week prior to 195,187 at the close of last week. This tells us that the result of the Greek election is positive for risk.
On a side note, risk is also increasing because expectations are high that central banks stand ready to loosen monetary policies when the G20 meet this week in Los Cabos, Mexico.
Top News This Week
USA: FOMC Press Conference. Thursday, 21st June, 2.15am. Look out for hints of QE3 by Fed chief Ben Bernanke.
UK: Retail Sales m/m. Thursday, 21st June, 4.30pm. I expect figures to come in at 1%, (previous figure was -2.3%).
Long EUR/USD at 1.2682
On the M30 chart, EUR/USD has hit a 2-month high of 1.2747.
With the end of the Greek elections, traders are turning to the G20 meetings this week for signs of market movements. Expectations are high that the G20 leaders will boost the USD430 billion firewall which the IMF announced in April.
A Fibonacci retracement is drawn on the swing low of 12th June to the swing high of 18th June. The 23.6 level is seen at 1.2675. EUR/USD has already touched this level yesterday.
We will enter for long once prices dip back down to 1.2682, which is 7 pips above the 23.6 level. A stop loss of 50 pips is set below the opening gap on Monday.
We will have two targets on this trade, exiting the first position at 1.2732 and the final position at 1.2782.
Entry Price = 1.2682
Stop Loss = 1.2632
1st Profit = 1.2732
2nd Profit = 1.2782