EUR / USD hits low in Asian Market

EUR/USD tested 4 month lows overnight in the Asian session hitting 1.2905. As I said yesterday I see no reason for optimism on the EUR. Is there a solution to the debt crisis? Answers on a postcard please. On the EUR/USD pair we’ll have a few attempts at 1.29 as there’ll be resistance at the figure however I fully expect us to push through with the next target level being 1.2875.

We’ve had a small retracement on the pair back to the 1.2920 level on the back of inflation figures released by Germany this morning. CPI rose 0.2% MoM and 2.1% YoY. Both above expectations and pretty much unchanged
from March. We have Spanish CPI out in a while with above expectation figures expected.

With talks rumbling on in Greece (anyone else getting bored talking/hearing about Greece?) with the possibility of another contest being held in June, this could threaten the austerity ‘pledges’ that they said would be implemented. It wouldn’t surprise me if Greece started sulking like a little child and said “it’s my ball, I’m going home” and ripped up the terms of the two bailouts that were negotiated, thus forcing the exit from the single currency union. It all seems to have an air of inevitably about it.

Obviously the powers that be are adamant that Greece should remain. Angela Merkel gave her support to Greece in her speech at the Bundestag on Thursday and also somewhat relaxed her stance on austerity with the French election of the pro-growth Francois Hollande meaning they’ll need to meet somewhere in the middle. With two contrasting views on the way to tackle the debt crisis a solution seems even further away than it once was. I don’t
hold out much hope for the PASOK party in Greece being able to build a cabinet after the New Democracy and Left Coalition failed. Elections in June will be the only option left and I can see things start to unravel in the summer for Greece (on the plus side, if you’re thinking of Greek island hopping or sailing it should be a little cheaper this year. Who knows, you may be buying your Ouzo in a new drachma)

Spain has its own difficulties however talk of them potentially requiring a bailout may be premature. Indeed, the nationalisation of the fourth largest bank, Bankia, doesn’t inspire confidence. Their public finances are fragile and bailing out the banking sector isn’t viable so unless the Banks raise more funds to cover off mainly risky property assets (Spain’s property market has been one of the most hardest hit) then it may then be the case that the Government have to go cap in hand. More likely however is that the EU will put some other ‘bailout package’ together, lump all the bad debts together and stick in a ‘Spanish asset bad bank’ or some such name. Another case
of “we’ll deal with that one later.

GBP/USD is again flirting with the lows breaking through the 1.61 briefly. For once GBP/USD is being stubborn and sticking to range bound trading. I expect ‘cable’ to come off with a figure of 1.58 my target level. However,
for now we’ll be stuck between 1.6050 and 1.62.

GBP/EUR wants to break through the 1.25 level however it may have lost some of its legs after quite a sprint up the past couple of weeks. Once it has a breather, perhaps a bottle of lucozade, then we’ll see it above the 1.25 level over the next few trading sessions. If you have an upcoming requirement on EUR and didn’t put market orders in yesterday at the 1.25 level I’d look to do that today in case you see a move up in the US session this
afternoon (when you’re in the pub) or the Asian session on Sunday evening (UK time).

I think we’ll see a ‘cross’ on GBP/EUR and EUR/USD by end of June. What I mean by that is we’ll see GBP/EUR and EUR/USD both trading around the 1.26 level and we’ll then see EUR/USD push lower with 1.25 in view and
GBP/EUR pushing onto 1.2650/1.27.

All the ‘exciting’ data has been released today with the aforementioned German CPI already out. Out of the UK we had PPI (MoM) and (YoY) (Input figures) -1.5% and 1.2% that came in under expectations and we also had
the output figures (MoM) and (YoY) of 0.7% and 3.3% respectively. We have PPI YoY (Apr) out of the US this afternoon however nothing else of note apart from Tier 2 data in the form of the Reuters/Michigan Consumer Sentiment Index (May). If you’re a CAD buyer or seller we have the Canadian Unemployment rate this
afternoon and Net Change in Employment (Apr) so you may see volatility on CAD
pairs this afternoon.

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