Dollar Surges As Risk Aversion Dominates On Greece

Risk aversion dominates global markets today as worsening Greece situation weigh on sentiments. After failing to form a coalition government following nine days of negotiations, political leaders will meet with Greek president Papoulias today again to organize another election in June, possibly on June 10 or 17, and put together a caretaker government. But would a new election solve the problems? The inability to for a coalition showed the division between pro-bailout and anti-austerity camp were so even that there cannot be any conclusion made despite the negotiation effort. The anti-austerity Syriza might be a front-runner to win the next election as latest poll showed. But we'll be reminded that over 70% of Greeks indicated their intention to stay in the eurozone. So, Syriza's win chance is far from being certain. And, no one could guarantee that the deadlock won't repeat in June after next election.

The pressing question is that the Greek government could run out of money even before the next election in June. But we'd expect some sort of arrangement to solve that. The biggest question is that European leaders are at the end of their patience on Greece. And further uncertainties or reluctance to follow through the austerity agreements would further raise possibility of Greece exit of eurozone. IMF chief Lagarde said that if Greece's budgetary commitments are not honoured, there will be "appropriate revisions," which means, "supplementary financing and additional time or mechanisms for an exit, which in this case must be an orderly exit." And, the "chain of consequences" from a Greece exit are " very difficult to assess" and would be "quite messy."

Technically, the Dollar Index jumped to as high as 81.54 so far today. The power of the rally from 78.60 is inline with the view that it's resuming the whole rebound from April 2011 low of 72.69. Near-term outlook will stay bullish for a break of 81.78 resistance to 61.8% retracement of 88.70 to 72.69 at 82.58 and above.

While the Greece situation will continue to be watched, there are other events to pay attention to. Germany will hold auctions on 10-year bonds today. From UK, BoE quarterly inflation report will be a major focus in European session on the chance of further quantitative easing. UK job data, eurozone CPI and trade balance, and Swiss ZEW will also be released. From US, main focus will be on housing data, industrial production and FOMC minutes.