Our dear old friend Greece is back in the headlines. The EUR has weakened for the seventh day in a row against the US Dollar and I see this bearish trend continuing. It’s hard to be anything but bearish on EUR. Greek politicians are struggling to form a new Government and the prospect of Greece withdrawing from the single currency is a worryingly real possibility now.
With the baton being passed from the New Democracyleader Antonis Samaras after failing to form a Govt at the weekend to Alexis Tsipras, the head of the second biggest party, Syriza, there is growing concern that an exit from the Euro Zone is drawing closer. With Syriza being againstfurther austerity, then by default, they’re for an exit.
With Hollande defeating Sarkozy in the May 6thvote this will evidently put strains on the Franco-German alliance that ha sbeen trying to hold the single currency together however the risk of contagionin Greece, particularly in the banking system, is the most worrying of all. The heart of the difference between Hollande and Merkel is likely to be the question of consolidation or growth. The fact of the matter is a fiscal pacthas been agreed by 25 of the 27 EU leaders and it can’t be renegotiated.Discussions will be had between Germany and France about spurring economic growth however there is now a lot of work to be done between the two biggest economies to establish a common front to inspire confidence in the markets thatthey are fighting the debt crisis together. If they diverge on the best way forward, as they are at present, then we’ll see further EUR weakness with the potential of an escalation in the debt crisis.
GBP/EUR is flirting with the 1.24 level. If you’re a buyer of EUR I’d look to cover off some of your exposure at these levelsthrough utilising a market order at the figure. We may see further EUR weaknessand we may see a sharp move up in upcoming trading sessions. We may move higheron GBP/EUR however you could look at working an ‘OCO’ to protect your downsiderisk and look to take advantage of any intraday movements to the upside. Please contact me to discuss.
GBP/USD has retraced back down in the London session today and I expect this pair to be somewhat range bound the next few days. Istill maintain we’re overvalued on this pair and I see a retracement back below 1.60 in the upcoming month. I don’t think the UK is particularly strong atpresent and any bad news out of the UK will see GBP weaken.
Don’t have too much in the way of data out today with the main event of the day being ECB president, Mario Draghi, speaking. Expectsome EUR volatility when he is speaking. Main day in terms of data releases andspeeches this week is Thursday. We have the ECB monthly report out along with the BoE Interest rate decision and the BoE Asset Purchase Facility (May). I’dexpect the BoE to keep both unchanged on Thursday.
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