No Reason To Own EUR

Markets trade in a cautious manner as investors digest the latest EFSF Greek disbursement numbers and Spain's attempt to help its fourth largest Bank. Perception is everything and the EFSF program had no choice but to disburse some of the promised aid to a ‘headless' Greece. It has released +EUR4.2b of the earmarked funds, holding back +EUR1b. No matter what is said and done, holding back of any funds will only anger Greek voters ahead of a potential election next month.

After +EUR386b in aid pledges for Greece, Ireland and Portugal, +EUR214b in ECB bond buying and approximately another +EUR1t in low-interest loans for banks, and maybe 17 high-level crisis summits, Greece's political chaos has again become the epicenter of European concern. Risk sentiment can only be but frail due to the persistent worries about the Euro-periphery. Despite markets this morning appearing somewhat subdued, there are no signs of an improvement to the Euro-zone crisis any time soon. This is a recipe for a resurgence of regional selling pressure to occur again soon.

Riskier Euro-zone government bonds have recovered a tad this morning from their worst levels in two-weeks after Greece's Euro partners agreed to give the country part of the previously agreed upon funds. However, ongoing concerns over the Spanish banking system has yielded new record low 10-year yields in Bunds and US treasuries this week and pushed Aussie 10‘s to a 60-year low. Euro shorts remain in play. The Techies will tell you that this weeks price movement has set itself up to test their immediate 1.2860 target, especially after yesterday's 1.2950 barrier breaking episode. The hourly's indicate that this market is overbought from the lower 1.29's, with little bounce, a retest of yesterday's lows is being factored in for the short term.

Overnight Chinese and Aussie data has brought a limited bounce attempt from riskier currencies and gold. Presently, risk direction is being dictated by Europe. Despite China's large trade surplus on the surface appearing to be good news, the +$18.4b (+$5.4b in March) is largely a result of weak import numbers. Investors will see this as a significant slip from Chinese domestic demand “for” the rest of the world. It is this that has taken some of the shine off some impressive Aussie employment numbers. Australia's unemployment rate unexpectedly dropped to a one-year low as payrolls rose for a second consecutive month last night. April's jobless rate fell to +4.9% from +5.2% after printing +15.5k new jobs. The report does not make it any easier for the rate guys. They are back to a wait-and-see approach by the RBA. Fundamentally, there is a high probability of a further-50bp cut in Q3. The Aussie Prime Minister's rhetoric this weeks has opened that door. However, the RBA most likely would require a huge shove from deteriorating data before following this route.

The possibility of Greek elections next month will be a referendum on continued euro membership, but before them, the Irish question will come first. Ireland holds its own referendum on the Euro-treaty on May 31. To date, the country has pushed through every measure asked of it since its 2010 rescue. A “no” vote would deal a massive blow to a German-led bloc in Europe that says budget cuts are essential to tackle the root cause of the 2 1/2-year crisis. With Irish opponents drawing inspiration from Athens and Paris, the referendum is in danger of becoming an anti-government vote against Euro membership.

From the ground level, the fact that the Irish politicians continue to “repeatedly bully voters to vote yes, by threatening that jobs will leave, there will be no safety net, and the country will go even further down the tubes than it already has, just ‘riles' people.” Being the best boy in the “European naughty chair does not endear the Government to the people either.” It seems that the powers that be never learn, “if you back Paddy into a corner he will come out fighting with the answer they do not want.”

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EUR: No Bounce, No Lift, No Life

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