EUR/USD fell to lows of 1.2666 however there’s been a retracement back up to around the 1.2790 level. It is still my opinion that EUR/USD will come off and it wouldn’t surprise me to see 1.25, or lower, by the end of the month at all. ‘Merkozy’ held their first meeting of 2012 yesterday in Berlin with yet again a lot of ‘noise’ being made with statements on Greece such as “We must see progress on the voluntary restructuring of Greek debt”. The talks also focused on the new fiscal discipline rules for the Eurozone that are to be implemented by March and also ways of stimulating growth and boosting employment in the area.
Also discussed again was the topic of the expansion of the EU rescue fund again. Where are these talks going? It seems to be a false dawn every time they meet and you have to ask the question; are Germany and France doing all they can to kickstart things? They said no country should leave the Eurozone however who really believes the Germans and French anymore. Unless they step up efforts and are willing to work a lot quicker and make major commitments then it has a hollow ring to it.
With Greece expecting their next tranche of funds later this month it could be another ‘make or break’ moment. I think we could see a messy default from Greece with them yet to make any advances on negotiations with private bondholders on how much of a ‘haircut’ should be taken. I still don’t think Greece can work through their debt problems and that’s been my view over the past year. I think it’s insurmountable and things will come to a head sooner rather than later now. With rumours now turning to Ireland suggesting that their bondholders will need to take a ‘haircut’ I don’t see any positives in the Eurozone at all.
GBP/EUR has been hovering around the 1.21 level for a while now with no clear break in either direction. GBP/EUR is mainly dictated through the moves in EUR/USD however we’ve seen bouts of Sterling strength intermittently. Indeed, very early this morning out of the UK we had some positive data in the form of RICS Housing Price Balance and also the BRC Retail Sales Monitor – All (YoY) (Dec). This has pushed GBP crosses up a little in the Asian session and also at the European opening.
GBP/USD has recovered some of its recent losses and is heading back towards the 1.55 level. This has been a pivotal level over the past few weeks and a lot will depend on USD movements. If you’re a buyer of USD an order at the 1.55 level may prove a good decision to cover off your exposure.
Today is pretty light in terms of data however we have Christine Lagarde, MD of the IMF, and Angela Merkel meeting today to take steps to stem the Eurozone crisis. The EUR has gained against the USD in the run up to this meeting. Dependent on the commentary from the meeting we could see a second day of EUR strength however I maintain that the single currency will fall to levels below the 1.25 by the end of the month.
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