The market opened this week in response to the Spanish bank bailout which was agreed on Saturday 9 June. However, it was a typical 'buy the rumour, sell the fact'. Whilst the news provided a short term positive reaction, the fact is that Spain is a bigger problem than Greece. Central bank borrowing levels for Spain and Italy are the highest they have been since the inception of the Euro which are unsustainable. Bank of Japan kept rates steady this week but reaffirmed current levels of the Yen are not reflective of the Japanese economy. Major news has been light this week and most currencies have seen a short covering squeeze as everyone exits their positions going into a potentially volatile weekend with the Greek election.
All eyes are now on Sunday's Greek election. The two parties, New Democracy and Syriza, have opposing views on whether to stay in the Euro. Many predict a New Democracy/PASOK coalition but it is better to wait for the rumour to settle and then trade the fact. Most brokers and banks are expecting very high levels of volatility so traders may want to consider the effect of holding any trades over the weekend. The market could gap aggressively, as it did last week, so please bear this in mind.
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