Euro Consolidates Loss But Remains Vulnerable

Euro stays in tight range in Asia today as markets continues to digest recent loss. But the recovery against dollar and yen is very weak and the corrective price actions suggests that the common currency is still vulnerable to deeper selloff. Greece situation and development will continue to weigh on sentiments. Greece head of Council of State Pikrammenos sworn in as leader of the caretaker government yesterday. New parliament will be sworn in today and is expected to announce new election date, probably June 17.

The election is built up as a vote for staying in or for exiting the eurozone. New Democracy party leader Samaras said Greeks are "faced with two choices," change everything in Greece with Europe, or "live through the horror and isolation of a euro exit." However, there is no guarantee that the election in June would be a decisive one and the uncertain situation might just repeat again.

World Bank President Robert Zoellick warned of the "ripple effects" on the rest of eurozone on Greece exit. Zoellick noted that the "core question will actually not be Greece, it's Spain and Italy." When that happens, it will start to "affect confidence" and will have "illiquidity moments." He also said that the capitalization in European Investment Bank is not enough and there is need for medium-term insurance for investors. He favors issuance of "eurobonds" to help stabilizing the European economy and give time for Spain and Italy to implement medium term fiscal reforms.

In response to the heavy withdrawal of deposits from Greek banks, the ECB announced that it will suspend lending to some of the institutions it does not consider as solvent. The central bank stated that "once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations."

The April FOMC minutes released overnight indicated that policymakers acknowledged improvements in economic growth but these remained insufficient to change its current accommodative policy stance. While there was slight change in language from the previous meeting, it appeared that the central bank turned mildly more dovish. Overall, the Fed continued to pledge that it would do more if the economy deteriorates further. More in Language Of FOMC Minutes Signaled More Dovish Outlook.

On the data front, New Zealand PPI input rose more than expected by 0.3% qoq in Q1 while PPI output dropped -0.1% qoq. Japan GDP rose slightly more than expected by 1.0% in Q1, industrial production was revised up to 1.3% mom in March. Canada International securities transactions, wholesale sales, US jobless claims, Philly Fed survey and leading indicators will be released later today.