There is a slight warming to Europe, where on one hand the polls remain neck and neck; however, the pro-bailout party, New Democracy, swung the balance of probability marginally in its favour by joining forces with the Democratic Alliance party (which captured 2.6% of the May 6 votes).
While one the other hand, Syriza leader Alexis Tsipras seems to have watered down his stance, suggesting he is keen on Greece staying in the EMU, though he wants to discuss the adjustment plan with EU leaders; clearly a populist move given 76% of Greeks want to stay in the Union.
There is also a heightened sense of expectations ahead of the EU (informal) summit on Wednesday, and a hope that French President Mr Hollande will continue his push for eurobonds, something that has been discussed for some time as the ultimate answer to creating a real fiscal union, although this is an idea that firstly needs to win over Angela Merkel and the Bundesbank before the PR campaigns can start on German voters.
There is also talk on the trading floors that Italy, Spain and France are ‘in revolt’ against Germany, and may propose a slew of measures including an EMU wide guarantee on bank deposits and full activation of the ECB as lender of last resort.
We highlighted the upcoming event risk both from an economic data perceptive and the ever increasing EU summit, and therefore we feel a continued push higher is a potential opportunity to sell EUR/USD given the structural issues and the fact that the Greek polls are still so close. We also feel that many of the ‘radical’ measures that are being discussed will be met by a wall of German pessimism, and are a long way from actually being implemented.