Sharp retracement in Euro in Mondays trading

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We’ve seen a sharp retracement in the EUR in Mondays trading with it losing around 350 pips against the USD. As suggested last week, the initial relief rally that gave buoyancy to the EUR has subsided with the market looking for detail and concluding that there are many more questions than answers. What direction will the EUR now take? I still see further weakness for the EUR as I still believe we’re not at “fair value” levels on a number of crosses. GBP/EUR has had one of its best moves in recent times with it climbing higher in yesterdays trading and overnight in the Asian session to reach fresh highs around the 1.16 level.

One of the main drivers in the sell off of the EUR is Greek PM, Papandreou, calling for a referendum on whether to accept the new financial aid package or not. He has also asked for a vote of confidence and has dismissed opposition claims for a general election. The confidence vote is expected for some time next week. There have been no details given on when the referendum will occur, what questions will be asked to the Greek people and what the implications would be of any result. Are we any closer to solving the debt crisis after last weeks ‘make or break talks’? It doesn’t seem so. There are still many issues to address. Again, a lack of coherent decision making and communication is at the heart of the problem.

This is a big week for a number of reasons. We have the GDP figure out of the UK this morning that is expected to show a minimal uptick in growth. The (YoY) (Q3) figure is expected in at 0.4% with the (QoQ) (Q3) figure expected to post 0.3%. Anything under consensus and we could see a retreat on GBP/EUR. This figure is released at 9.30am UK time. Shortly before the release of GDP we have PMI out of the UK and Germany. The UK is expected in at 50 so if it comes in on target we’ll probably see little movement on GBP crosses however if we see a figure over 50 we could see some bullish momentum on Sterling. Germany’s figure is expected to show 48.9, weaker than the previous month’s figure of 50.3.

With all the volatility in the market at present, Market orders should be utilised to take advantage of these moves. You could use what is known as an ‘OCO’ – one cancels the other. It protects your downside risk through utilising a stop loss order so you have a ‘worse case scenario’ and it allows you to look at the upside in case of spikes in the market giving you an opportunity to achieve the best possible rate. Please contact to discuss further.

Also this week, and what a week to start your new job, incoming ECB President, Mario Draghi, will give his first speech on Thursday where he is expected to decide on monetary policy. Investors this week will turn their attention back to Greece, will have an eye on Italy and will look to see the tone Mario Draghi sets. Rounding off a chaotic day today we have the Fed interest rate decision this evening followed by a press conference. We also have the precursor to the NFP figure released in the form of the ADP employment figure out this afternoon that will be keenly awaited.

So has the market regained any confidence and direction on the debt crisis? No it hasn’t. Are we any further forward to a solution? It doesn’t seem so. We’re back to ‘wait and see’ mode – again.

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