Investors are once again in a heightened state of concern, and unsurprisingly, it's the worrying lack of positive progress in Greece which lies at the core. With the troubled sovereign seemingly have to survive pay-check to pay-check; it is absolutely critical that the next tranche of EU/IMF funding is forthcoming. What is troubling the financial market is that the troika who will ultimately decide whether to release the next instalment of bailout cash are not certain to do so. Many are worried that the troika will demand Greece's government implement additional austerity measures in order to qualify for the next payment, and that is not going to be the easiest of tasks for policy makers already struggling to impose unpopular taxes and spending cuts on the Greek public. Clearly there are sufficient concerns about this that Greek Prime Minister Papandreou chose to cancel a scheduled trip to the US in light of the precarious state of his own country's future. Adding further burden to an already messy situation, the Greek opposition leader has now called for fresh elections - a call that would almost certainly complicate matters considerably. We doubt that the Greek opposition's demands will be satisfied anytime soon, but it disturbing that the situation in Europe appears to be deteriorating rather than improving with each day. Naturally, investor attention has been keenly focused on the latest news emerging from the IMF and Greece today, and there will undoubtedly be heightened vigilance around 12:00 GMT when there is a scheduled conference call between Greece and its EU/IMF inspectors. Subsequent to that call, it is anticipated that the Greek PM will hold a special meeting with ministers to discuss the available options, in particular the structure of next year's budget in order to comply with any fresh troika demands. Many remain sceptical that Greece has the stamina to keep up with its onerous obligation to meet bailout conditions, and fear it is just a matter of time before the country falls behind and may have to default. Given these concerns, it is likely EURUSD will struggle to stay up at present levels, and we predict that there will be a test of 1.3000 levels in the coming weeks. Outside of Europe, there is a lot of anticipation building ahead of this week's Fed meeting, and in particular whether US policymakers have been compelled to consider further stimulus in light of the recent domestic data and heightened risk of global recession. We still feel that the current level of US inflation (headline CPI 3.8% YoY in August) is prohibitive to another full blown round of quantitative easing, but some are predicting that the maturity of the Fed's balance sheet may be extended to lower, long-term interest rates. With so much uncertainty and major political events coming up, expect FX volatility to rise and headline risk to remain high-profile.
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