EUR/USD is struggling to break in either direction. We reached a high of 1.2623 on early morning trade yesterday and then we dropped down to around the 1.2530 level. It’s struggling to break through the psychological level of 1.25. I fully expect us to break this with a continuation down to around 1.2380. We’ve had the usual positive noises out over the weekend in the form of Greek polls showing that the far left are behind and thus this may prove to be a positive for the EUR as the party that is elected is likely to adhere to the terms that were set and implement the necessary austerity drive. Hmmm, I’m not convinced. The Greek population will vote dependent on what is going to be the lesser of two evils and to how much money will be left in their pocket. I see the ‘Grexit’ as being the more likely scenario now rather than ‘muddling’ along. It can’t continue for too much longer.
So what does this all mean for the embattled single currency? Further woes in short. I expect the downtrend to continue on EUR/USD with a break of 1.25 imminent. We have recoveries intraday on the pair however it fails to sustain any momentum. This morning we reached the dizzy heights of 1.2574 and then it came back off. The fundamentals are poor for the EUR and no matter what spin you put on it the outlook for the EUR is further downward pressure. That beer by the pool in Europe this summer is going to taste even better if GBP/EUR continues upwards to 1.30. The Greek tragedy rumbles on and market attention is still tuned into Spain. A nice analogy on Spain/Greece ‘competing’ for market headlines from a City research analyst –“It’s a bit like watching two candidates on the Apprentice desperately trying to save themselves in the board room from being dismissed by Lord Sugar, only for them both to be fired”.
Poll time - Will Spain require some form of EU assistance? I’d be shocked if they don’t put it that way. The property and banking sector is in real trouble and this morning’s release of Spanish Retail Sales (down 9.8% in April, on a YoY basis). That’s a record fall and puts their current predicament in some kind of context.
Expect the next 3 weeks in the run up to the Greek elections to be volatile on an intraday basis with no clear logical direction in the markets (if ever there was one) Rumours will be out on a daily basis and no doubt we’ll have the European officials spouting things such as “we’re making progress”, “we’ll solve the problems”, “We’re taking urgent action”. Really? Why are we still hearing the same comments 2 years down the line. The ‘Grexit’ has an air of inevitably about it. Indeed, with the Euro Championships a few weeks away a certain bookmaker is offering odds on whether the Greek football team or the country will exit Europe first. (Greeks final group game is on the 16th June/Elections on the 17th).
So what of GBP/USD? To say it’s been dull yesterday and this morning is an understatement. We’re trading between 1.5670 and 1.5715. If you’re a buyer of USD I’d look to try and secure 1.57 if you can through a market order. I see further weakness on GBP/USD with a break of 1.5630 the next big resistance. With the comments and likelihood of further QE being implemented I forecast GBP pulling back to around 1.55.
Not too much out in terms of data today. We have CPI (YoY) and (MoM) (May) out of Germany and across the pond this afternoon we have Consumer Confidence (May) and Building Permits (MoM) (Apr) out. With our US friends back at work after memorial day yesterday hopefully we’ll see an increase in volatility as yesterday was as flat as a pancake.
GBP/EUR is now firmly settled above 1.24. If you need to cover off some of your EUR exposure work market orders around the 1.25 figure as we’re struggling to break much higher. Alternatively, look to work an OCO from 1.2450 to 1.2550. If you have any questions on this let me know and I’ll put in place for you.
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