Greek woes continue to dominate the market. Greek PM Papandreou has installed Evangelos Venizelos as the new finance minister in an attempt to reshuffle and strengthen his cabinet. EUR/USD has continued its downward trend with a slight retracement in the US session however overnight in the Asian session we’ve seen this corrected with dollar strength continuing into the European opening. The Euro remains weak and I don’t see that changing. If we break through key support levels today then we could see the Euro drop dramatically. Any commentary released today from the meeting of European leaders, or over the weekend, could intensify this move further. The Euro was not helped by the views of Former Federal Reserve Chairman Alan Greenspan who said that a Greek default “was almost certain” and that this could “push the US into recession”. Make no mistake; if the Greeks do default the ramifications will be huge. Not only for Germany and France, who have the most exposure to Greece, but also corporations, and the contagion risk to countries such as Portugal and Spain is massive. Greece’s budget deficit is still three times larger than the EU limit and I feel that they’re fighting a lost cause. They’re almost in denial about the situation. A “soft restructuring” will most likely be implemented however this will only “kick the can down the road” as one economist put it. The next few days are going to prove pivotal. I think we’ll see the Euro come off and possibly quite sharply as alluded to in recent days.
Out of the EMU this morning we have the trade balance figure being released at 10am UK time. Its second tier data and it’ll provide marginal volatility for the Euro crosses however with other events of today being of more importance this will, in my opinion, have very little impact today unless the figure comes in excessively below or above expectations.
The Dollar has seen a lot of gains on the back of the Greek situation this week with it gaining against the Euro and Sterling and a basket of other currencies. Cable is tracking the EUR/USD move and we’ve seen a daily downtrend on the pair pushing GBP/USD this morning to the lowest level this week. We have the Michigan survey out this afternoon from the US which is a consumer confidence survey that will give us an indication of how willing the US public are to put their hands in their pockets and spend. I believe the EUR/USD will continue it’s downtrend and Cable will continue to follow this move. If you’re a buyer of USD and seller of Sterling locking in some of your exposure at the moment may not be the worst move as any sudden announcement on the Greek situation could see the pair lose value.
Sterling is largely taking a backseat at the moment. The markets focus is elsewhere and Sterling will be a beneficiary, in my opinion, of the Greek situation – no matter what is agreed. If we see a sell off on the Euro we will see Sterling climb higher. How strong that move will be is open to debate at this juncture. If you’re a buyer of Euro’s market orders will allow you to take advantage of any sudden market movements, which due to the nature of the Greek predicament, may well be substantial. Please contact your trader to discuss.
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