Markets Focus on Greece's Troika Impasse; Euro Gaps Lower to Start the Week

The Euro followed equity markets and gapped lower to start the week on Monday as the Asian session focused on the escalating problems with the Greek bailout agreement. Risks of default are increasing as the Troika withheld 8 billion Euros from the current loan allotment and Greece's available cash approaches emergency levels. The Greek Prime Minister (Papandreou) was forced to cancel a scheduled trip to meet with the US government to arrange talks with the Troika. Currently, the Troika is demanding new austerity measures, and without this there is an increased possibility that the next tranche of bailout funds will not be paid out. Internally there are obstacles as well (reminiscent of the recent US debt ceiling stalemate) as the leader of the opposing party is calling for new elections as a means for creating a larger political majority. Moving forward, market attention will rest on the FOMC rate decision later this week. There is no expectation for a change in rates but the accompanying policy statement will give markets some longer term direction. Currently, the FOMC has stated that rates will be on hold until 2013 but some members are divided, so the specific language of the statement will be key. As long as the FOMC maintains its current stance, markets will have little motivation to move higher. The EUR/USD saw a steep drop to 1.3640-1.3795, while the USD/JPY is higher at 76.80-77.05. Asian equities are jittery and likely to remain focused on headlines for its next short term trend. In England, the recent shifts in policy bias from some of the bank's more hawkish members (Weale, for example) will be tested this week as markets look to access some critical macro data that could suggest an increased possibility of seeing increased to the BoE's asset purchase program. Right now, the central bank is betting that inflation will level out for the rest of this year, so further tightening might not be necessary. Right Move House Price numbers showed a rise of 0.7% for the monthly data, and 1.5% for the yearly data. The BoE policy meeting minutes will also be seen this week, and markets will be looking to see if there is a new vote in favor of additional QE stimulus. If this does materialize, the regional equity markets could see some short term gains. Read the rest of this article at our

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