ForexSpace.com - As the constituents of surrealism would have it, a peculiarly quaint ceremony took place in Greece this morning to set the Olympic flame alight ahead of the torch relay, which will be heading around the world before culminating in London for the 2012 Games. I’m sure I cannot be the only onlooker to have considered how this prosaic event, staged in front of the ruins of the Olympian Temple of Hera, rendered an eerie similarity to an early episode of Star Trek. All it needed was for the legendary William Shatner to split infinitively into view!

Nor can I be the only person, surely, among market watchers, forex traders and top forex brokers left pondering if there might also be some spooky-yet-hopefully entirely coincidental analogy in the spectacle of a flame emanating from the Hellenic republic touching off an immolation that spreads to the four corners of the planet!? Thus, as a bevvy of "high priestess" captured the sun's rays in a parabolic mirror, for a few moments, we could inwardly reflect how the ceremony provided a welcome, albeit brief interlude to the political and economic turmoil currently producing more heat than light in the home of the Ancient Olympics.

Even in the US, which appears to believe the goings on in Europe are Europe’s problem, and therefore Europe’s problem to sort out, stocks pared some heavy losses; however this didn't stop them recording a sixth day of losses as the turmoil surrounding the ClubMed countries continues to wipe out tidy gains from Q1. The Dow did manage to retrace some of the lost ground from earlier in the session to close down 0.75 percent, while the S&P and NASDAQ both finished the day down 0.67 percent and 0.32 percent respectively.

The later gains, such as they were, arose courtesy of Spain, which announced its most troubled bank, Bankia, will be part nationalised. Investors have also been cheered moderately in the knowledge that Alexis Tsipras, the leader of the austerity-defiant left wing Syriza Party, was unable to find a suitable mate in what turned out to be a particularly torrid round of speed dating. As Ashraf Laidi, Chief Global Strategist at City Index / FX Solutions, says: “Tsipras continues to sound more like a zealot than a deal broker. He sent the euro below 1.30 on Tuesday after he said the election results make the Troika bailout accord null and void.”

Thus, Pasok leader Venizelos (despite finishing third in the weekend polls) will now have a remote chance to form a working government.

One crumb of comfort can be found in how it now appears the Greeks will have the funds to see them through to July, not June as originally thought, meaning a second round of elections isn't as catastrophic as once thought. This, after yesterday’s chattersphere teemed with posits on Greek politics, whether or not who will join who to support whomever and what will happen next. There was even a rumour being bounced around that the 5.2bn euro bailout payment was to be delayed.

But it was all a merry dance, if you like that sort of malarkey, and which – like its Strictly Come namesake – proved entirely meaningless. What is certain is that the markets, for sure, will view the second round of Greek political talks as a referendum on whether Greece remains in the euro zone, not least because it will allow the more extremist parties, such as Syriza, another shot at accumulating the additional votes required, either to gain the majority themselves, or notch up a significant increase leading to an entirely leftist coalition.

However, the single currency did manage a rebound after Greek right-of-centre leader Antonis Samaras confirmed his willingness to tolerate a minority government. Adding that he did not want new elections, Samaras – whose conservative party came first in Sunday's election – stressed it was imperative for the country to remain in the single currency bloc. Although he has called for the bailout terms to be renegotiated, he said pulling out of the euro zone completely would be ‘disastrous’.

In the aftermath of so much rhetoric and blather, while the euro rebounded to nearly 1.305 according to live forex charts, risk trades fell hard at the end of European trading, the S&P 500 fell as much as 1.65 percent and commodity currencies struggled; but those trades later rebounded with stocks closing down just 0.4 percent. Speculating on all this, Neal Kimberley, FX analyst with Thomson Reuters, tells me how he felt as far back as Tuesday that the politics would weigh on the euro/dollar, “and to an extent that has played out,” he said, adding: “I must, however, give due respect to the single currency. It has hardly been a collapse.”

Kimberley believes part of the reason is euro zone exporter demand (and that is eminently understandable), sovereign interest to hem euro/dollar in to protect option exposures, and the fact that leveraged names can get more traction on IBEX in five minutes than they have been seeing on euro/dollar in a day.

“But, I think the downside grind will resume,” opines Kimberley. “Politicians are nothing if not opportunist, and the Greek vote has clearly shown that those politicians in Greece who have aspirations to control the levers of power will need to tack towards the anti-austerity camp.  For a big lad, it’s already obvious to me that Mr Venizelos can be quick on his feet.”

Which raises the crux of the matter:  if Greece does eventually walk, who’s wearing the cost?  Even if we ignore all the potential bail out losses, we’re still staring at the fact that within TARGET2, Greece is already said to owe some 109 billion euros to the core (mainly Germany). Who would pay that back?

As Kimberley concludes: “When I follow the money trail, I see no reason why the euro should sustain a rally in the current circumstances.  1.2800 seems reasonable to me as an hors d’oeuvre. As for the main course: 1.25?”

At this morning’s Olympic flame ceremony, Locog Chairman Lord Coe waxed lyrically about today being the “rallying call to the athletes - the best athletes of their generation… That in itself is a big moment, because it's the biggest sporting event in the calendar." He might as well have replaced the word ‘athletes’ with ‘politicians’, and ‘sporting event’ with ‘economic meltdown’; now that – ala Star Trek – would be boldly going indeed!

Drew Hillier. Editor