Forex day trading room. The ash cloud spreading over northern Europe is a clear reminder that one EU nations problems will eventually plague the rest. We are steering clear of extrapolating the effect on the GDP, since extreme weather related effect are generally exaggerated. However, the rumor mill has been swirling that Greece's schedule meeting with EU and IMF officials over the next few days will lead to the deployment of aid. In early European trading, the EUR has picked up a slightly bullish tone after being sold in Asia. Traders will be keeping one eye on developments surrounding Greece and the other on German elections. It's important to point out that Greece has capital to cover this month's bond redemptions and is moving ahead with its US road show (which suggest pre-marketing was successful). So, the concern is longer term funding issue. The current markets rate for Greece paper is unsustainable for continued borrowing, despite the recent pullback in yields, which means that Greece will have to turn to subsidized lending from the EU / IMF. Given the logistical issues before any capital can be distributed, including legal challenges and the fact that many countries just don't have the cash on hand, there will be a significant lag from requesting to distribution. Greece has a choice whether they can wait till all issues have been cleared or request the bailout now giving EU nations time to prepare. Since the IMF will be in Athens on Monday, Greek officials will be able to sort out issues such as lending rates and how harsh austerity might be and, in our opinion, highly increasing the probability that the EU / IMF bailout is called in. The knee-jerk reaction should be EUR positive as the short term sentiment relief should put pressure on the markets extreme short positioning. The sterling came under selling pressure as yesterday's first ever televised election debate between the three hopeful leaders re-introduced the promise of a "hung" Pa [...]
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