Market News & Insights
27 April 2015

EUR Holds Firm Despite Break Up Risks

EUR/USD 1.0848
GBP/USD 1.5142
GBP/EUR 1.3961 (0.7162)
EUR/CHF 1.0362
GBP/CHF 1.4478
GBP/AUD 1.9383

Risk was well supported through Friday’s session despite a number of potential headwinds remaining in markets. Stocks in both the US and Europe traded higher while the USD ended the week under some selling pressure. A Eurogroup meeting in Riga saw Greece in the headlines once more, there was little expected from the meeting in terms of progression but reports suggested that Greek finance minister Yanis Varoufakis was on the receiving end of a severe berating from Eurozone finance leaders with the Financial Times suggesting yesterday that leaders may now look to bypass Varoufakis in further talks as his combative style is causing concerns not just for Greek Creditors but also in Greece which teeters on the edge of a Eurozone exit once more. Despite this the EUR traded higher against a weaker USD, while maintaining its weeks range against GBP. Risk has remained supported in early overnight trading, the USD has started this morning on somewhat firmer footing while in the overnight markets the aussie was an outperformer.

There was very little in terms of major news flow to support the EUR on Friday yet the single currency held its own, German IFO business confidence was better than expected with the current estimate beating expectations while the expectations estimate pointed lower, the overall takeaway being mildly positive but not enough to warrant the single currencies advance against the USD, which was encouraged by weaker US data. Once again there is little in terms of major releases from the Eurozone today but we do have plenty of ECB speakers across the wires and the ECB will be announcing its asset purchases from last week. Given the risk surrounding Greece many of our clients appear to be questioning the validity of EUR strength at these levels, however we still remain well within the larger range in EURUSD between 1.1000 to 1.0500 with any progression higher used as a buying opportunity for clients to sell EUR and buy USD. EURGBP continues to test to the downside with any progression higher likely held ahead of .7300.

The USD was on the back foot for much of last week and all eyes will be on Wednesday’s Fed meeting for further indications on when the Fed see rate hikes beginning. Members for the FOMC are unlikely to have shifted their view that US rate hikes will be data dependant and while we expect them to highlight the slowdown in Q1 as temporary, with normalisation resuming through the year, we still have to take the slowdown into account and our readers will be familiar with our view that current data, both US and Global, will likely see the Fed remain on hold until later in the year, at least until we see some consistency from US data releases. Markit Services PMI as well as the composite figures cross the wires this afternoon any slowdown in these prints will once again put pressure on the USD.

GBP made a good run last week, EURGBP tested back below .7200 while GBPUSD confirmed a push higher above 1.5000 falling just short of 1.5200. UK GDP figures cross the wires this week (Tuesday) and the year on year figure is expected to move from 3.0% to 2.6%. In our view this leaves some scope for an upside surprise given the UK data on the whole has tended to surprise to the upside. Elsewhere UK elections draw closer and with that we still would expected to see some uncertainty priced into GBP over the coming weeks. A Labour victory, or coalition continues to be the larger risk to GBP.