Investors run for the exits ahead of Greek election; A$ breaks parity | June 15, 2012

A global push for safety has manifested in a decidedly different way from the usual flight to low yielding asset classes with investors squaring up short exposure ahead of the Greek elections on Sunday. We’re seeing a general reluctance to hold/build short positioning in the lead up to Greece’s elections which continues to force a squeeze of shorts in the market. U.S stimulus expectations and a report suggesting imminent central bank action have also seen investors attempt to take a neutral stance ahead of such critical event risk. A Reuters report suggesting a global contingency plan is in place to provide much needed liquidity should Greece’s elections fail to yield the desired result has also provided some inspiration across markets, with a notable Euro rally seen in the ensuing period.

It was another day of pain for Spanish markets with 10 yr yields topping the 7 percent mark, representing the highest level of borrowing costs since the Euros inception. This 7 percent level is a particularly important psychological milestone for investors which marked a request for financial aid from Greece, Ireland and Portugal. Although Spain has already sought financial assistance for the troubled banking sector, diminished appeal for Spanish government debt may see a sustained break above the 7 percent region suggesting a sovereign bailout is just around the corner.

A subdued U.S inflation print and less than inspiring weekly jobs report kept the quantitative easing dream alive for U.S markets overnight which provided natural resistance for the U.S dollar, in-turn providing a platform for risk currencies such as the Australian dollar and Euro to move higher. U.S Consumer Prices rose at an annual pace of 1.7 percent in May, down from 2.3 percent in April. Economists had anticipated a slightly higher reading of 1.8 percent. Core inflation rose 2.3 percent on year in May matching last month’s gain.

The Euro made a break to the upside of $US1.26 earlier this morning and currently remains supported above the figure. We’ve also seen the Aussie dollar intermittently test U.S dollar parity overnight with heavy resistance at the figure broken in the last hour forcing a further squeeze of short positions and weaker hands in the market. U.S equity markets outperformed with the DOW and S&P rising 1.24 and 1.08 percent respectively despite general weakness earlier across European equity markets. At the time of writing the Aussie dollar is buying 100.25 US cents, 79.3 euro cents and Y79.5.