Tuesday, June 28, 2011

Greece is the Word on Traders' Lips

Forex Trade of the Week by Mario Sant Singh:

 28 June 2011

SELL USD/SGD at 1.2385
SL: 1.2446  TP: 1.2335
The volatile movements in the Forex Market seem to be telling the same story – that traders are only fixated with the outcome of the Greek saga.

Last week, Greek Prime Minister Papandreou survived a no confidence vote when lawmakers voted 155-143 in support of the Prime Minister.

This week, he is hard at work trying to gain support for a EUR28 billion Austerity Program that will last 5 years. This program is crucial in determining whether the EU and the IMF will dispatch its next tranche of funds to aid Greece.

After the EU and the IMF pledged to "do all they can" to help Greece, this pivotal Austerity Program is a show of confidence from Greece that they are "doing all they can" in response to the support from the EU and the IMF.

On Wednesday, the Greek Parliament will vote on the Austerity Program. Internally, they have a deadline of 30th June to obtain Parliamentary approval for the bill. 

This is just 3 days ahead of a meeting involving the Eurozone Finance Ministers, which happens on 3rd July. 

Not surprisingly, the finance ministers have also given Greece the deadline of 3rd July to pass the bill, failing which the next bailout payment will not be released.

Let's consider the outcome of the vote.

a. Austerity Program Accepted

If the Austerity Program is passed, risk aversion will start to subside and safe haven flows will recede. This means that traders will move into currencies with higher yields, typically the Aussie (AUD), Kiwi (NZD) and the Loonie (CAD). Other currencies which will stand to benefit include the Euro itself and the British Pound.

b. Austerity Program Rejected

If the Austerity Program fails to gain acceptance, a possible Greek default could very well turn into a reality. Major central banks around the world have warned that a Greek default could trigger the next financial tsunami. This will push traders to traditional safe havens like the Swiss Franc, Japanese Yen and the US dollar.

Although a small country with no major contribution to world GDP, the fact remains that many European banks are heavily exposed to Greek debt. The domino effect of default could take place and the panic attack could trigger the next major sell-off not seen since the collapse of Lehman Brothers 3 years back.

Could this happen? At least one man seems to think so.

"There's no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable. We are on the verge of an economic collapse which starts, let's say, in Greece, but it could easily spread. You need a Plan B and there's no Plan B at the moment," said George Soros in Vienna yesterday.

Top News This Week

Canada GDP m/m. Thursday, 30th June 2011, 8.30pm. I expect figures to come in at -0.1% (previous figure was 0.3%).

Trade Call

SELL USD/SGD at 1.2385
On the 4-hourly chart, USD/SGD is moving in an expanded range. A level of resistance is detected at 1.2441. A good short setup is spotted if prices bounce off the resistance and head downward.
We will go short when prices retrace to 1.2385. The stop loss is placed 5 pips above the previous high of 1.2441, and we will have 1 profit target on this trade.
SELL USD/SGD at 1.2385


by Mario Sant Singh

CNBC Market Analyst and
FXPRIMUS Director of Training & Education