As the top three parties in Greece are unlikely to form a majority government, market fears that Greece might not be able to comply with its strict austerity targets in return for bailout fund from EU and IMF. Renewed concerns over a possible default by Greece, or even exiting from the single currency union, have damaged the risk appetite badly. In addition, concerns over the deteriorated financial situation in Spain has sparked market tensions further, as the Spanish government has announced that they might fail to meet targets for fiscal tightening. Risky assets have remained vulnerable to further dips while market is simply looking for safe-havens. Despite China announced to cut banks’ reserve ratio requirements over the weekend, which signals a more aggressive monetary easing in the near future, major currencies did not appreciate, instead, they tested lower on Monday’s market opening. Furthermore, the Euro-zone is going to announce Q1 GDP results tomorrow. If the results continue to show a contraction in the economy, we might see the Euro accelerate its decline towards 1.2800 as a minimum.
Although fundamental factors are pointing towards a strong bearish signals to all risky assets, it is worth to mention that most of the major pairs are now trading at the oversold areas, hinting a corrective bounce is possible in the short-term. Investors are eyeing on the FOMC meeting minutes on Wednesday night, it may give some clues on what Fed’s future moves will be after the OT policy ends in June. However, recent comments from the Fed officials have maintained their hawkish stances, which showed their reluctance to engage in more easing. In another word, QE 3 is unlikely to happen unless the U.S. economy deteriorates significantly. If the minutes tell a story similar to the recent comments of the officials, it is likely to hit the risk appetite and support the Dollar further. Dow Jones FXCM Dollar Index maintains its upward trend since May and advances to a fresh monthly high of 10,034. The risk aversion demand may lift the greenback higher towards its critical resistance at 10,080.