All eyes appear to be on the Greek situation this morning, following the meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy this weekend.
The euro received a leg up on Friday versus the US dollar with both parties of the meeting appearing to be nearing a decision for a second bailout package for Greece, but this rally appears to be short-lived. With this in mind, investors were pushed into the safety of gold on Friday, helping it climb 10 to 1538. The precious metal was also supported by a stream of weaker than expected numbers from the US i.e. consumer confidence. Using the 40 day moving average as a base, it still held an intraday bias of sideways, with a bullish long term view.
The correction on Friday in the Equity Markets also seems to be a mere hiccup in the continuing downtrend. European Markets in particular are in danger of bearing the brunt of the new bailout package. Boris Johnson appears to be leading the call for cutting Greece loose and reducing Euro members by one (for now), but with Portugal, Ireland and possibly Belgium, Spain and Italy not far behind, it will be interesting to see if the “too big to fail” principle applies to governments as well as banks.
You would think that with the Middle East situation worsening in areas such as Libya or Syria, oil would be pursuing its increase. What we are actually seeing is the recent spring rally being erased. On Friday we saw oil prices drop off the side of the earth, partly due to the prospects of reduced demand as data from the US didn’t instill confidence, but additionally concerns over the European sovereign debt crisis, potentially throwing the world back into recession, if realised could be disastrous for energy demand. Ultimately, what investors are left with from a technical view, is a bearish short term trend.
Snapping out of a two session losing streak, the Australian dollar gained 54 ticks against the US on Friday to finish at 1.0618 on hopes of a breakthrough on the Greek front following Germany’s stance of being ready to compromise. The interest rate differentials continue to play an important part in attracting investors as the base rate in Australia is 4.75%, the biggest among the developed economies compared with the Fed’s rate of 0 to 0.25%. The prospects of economic growth are also higher in South Pacific nation given a very resilient Chinese industrial production. All in all, the short term bias points towards consolidation.
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