FX COLUMN-The euro and Greece: which way is up?Wed, May 19 2010

(Kevin Weir is a Reuters foreign exchange market commentator. The opinions expressed are his own.)

By Kevin Weir

NEW YORK, May 19 (Reuters) - The euro moved higher Wednesday morning after finding a low at $1.2143. One catalyst was rumor of very heavy intervention by the Swiss National Bank, which has been laboring to prevent a too-rapid appreciation of the swiss franc.

The rumored buying of euros by the central bank propelled the currency as high as $1.2328. Following a slight retracement, the euro spiked higher again, this time on another rumor, that Greek Finance Minister Papaconstantinou had said Greece was considering "separation" from the European Union.

Some might consider the quick move higher by the euro in response to a rumored breakup of the euro zone to be counter intuitive. Much of the recent pressure on the euro has come after all in response to concerns over the longevity of the currency union.

But it may be indicative of the current market climate that a pension fund manager, when asked why he thought Greece's departure would be beneficial for the euro, unhesitatingly responded "You're kidding, right?"

The desire of some market players to simply wash their hands of the situation and make it go away is understandable. Institutional investors, particularly those involved with equities, are generally comfortable discounting company and sector level data in conjunction with economic reports.

They are frequently much less happy when circumstances compel them to try to comprehend the market impact of German regional elections and the ECB constitution. A Greek departure, therefore, might give rise to the hope that as much or as little attention as a manager wished could be devoted to the country, its economy, and the companies that call it home.

"Little" seems more likely than "much" in most such cases.

Still, the people buying euros Wednesday morning in response to the rumor were for the most part hard-bitten currency mavens long accustomed to absorbing, and trading on, political news.

For at least some of these, the supposition is that a departure by Greece would bring a quick end to an inevitably painful and messy process, saving the remaining governments a fair amount of money into the bargain.

As one fixed income manager observed, "Belgium, Holland, Finland, all have decent productivity, and you could say that if the peripheral countries were to depart, they'd be in an optimal currency regime".

Other market participants, however, found the notion that Germany and its partners might have moved to aid Greece out of altruism or a desire to protect the integrity of the euro zone almost laughable.

The point most frequently made was that German policymakers quite rationally decided that the cost of bailing out Greece was likelier to be less costly and annoying than the expense of repairing the local banks with significant exposure to Greece.

All of the arguments outlined above have pros and cons. However, as technicians are wont to say "at the end of the day it's the price that matters".

On that basis, the surge in the euro in the wake of the rumors of a Greek "jailbreak" is perhaps the best evidence that the foreign exchange market, despite the sizable profits said to have been generated from short euro positions, is bored, and ready for new sources of stimulus, and revenue.