GBP/USD has followed the single currency to the upside since Monday after risk appetite returned after successful bond auctions and strong Chinese and European Data. With the PSI negotiations in Greece having just a hint of an agreement we may see a slight uptrend in the EUR in the coming sessions. It’s still a case of ‘will they won’t they’ get their next tranche of bailout funds. Greece will stamp their feet like a child and inevitably get their funds. What other options do the powers that be have? Not give them what they want and then have to deal with an ‘orderly’ or ‘messy’ default? It’s still a default no matter what spin you put on it and the rating agencies will implement further downgrades. Even if the private sector debt holders accept a 50% ‘haircut’ Greece’s Debt to GDP ratio will still be around 120% which is simply unsustainable. Yet again, we seem to be ‘kicking the can down the road’. The debt levels, in my opinion, no matter how you dress it up, aren’t sustainable and won’t be repaid. Will the Greek people after years of prosperity, not paying taxes, taking and taking, be happy with years of austerity? I doubt that very much. We have Spanish and French Bond auctions later on today that will be heavily scrutinized by investors however they’re expected to go smoothly. US Equities and data will be the main drivers today.
Where now for EUR/USD? The recent EUR strength will be short lived and I expect a retracement on EUR crosses soon. I still expect EUR/USD to be trading down at the 1.20 level this year and no matter what intraday or weekly moves occur, my medium to long term view remains. If you’re a seller of EUR into any major currencies I’d look to secure some of your exposure for the year fairly shortly to hedge your risk.
GBP/USD to me looks toppish with 1.5430 being a key level. The last time we reached this level a week ago we saw cable come off and trade around the 1.5260 level. If you’re a buyer of USD I’d look to secure some, if not all, of your exposure around these levels. My view on GBP/USD is that we’ll be trading just under the 1.50 level in the next month.
GBP/EUR is heavily reliant on data releases and commentary on the single currency. Sterling will be a beneficiary once we see the corrective move downwards on EUR/USD. I’d look to work market orders around the 1.20 level as over the past two or so years this is near the trading high.
Limited data releases out of the UK and Europe today however we do have the ECB Monthly report released today that will give us an idea of the economic conditions in the EMU. We have a lot of US data out this afternoon with the main figure to look for being Consumer Price Index released at 13.30 (UK time) followed by housing starts and building permits and jobless claims figures.
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