Market News & Insights
21 April 2015

Euro’s Slide Continues

EUR/USD 1.0679
GBP/USD 1.4866
GBP/EUR 1.3922 (0.7182)
EUR/CHF 1.0250
GBP/CHF 1.4269
GBP/AUD 1.9256

The euro has started the week under selling pressures, a combination of decreasing sovereign yields and escalating concerns about Greece make the single currency an unattractive proposition for most. From an investment and trade perspective there are not too many stand out currencies to attract, and at this point the USD continues to outshine its major counterparts as there appears less uncertainty surrounding the greenback, in essence US interest rate will be rising, it is just a matter of when. GBP remains under election pressures with all parties now releasing their manifestos, stagnant inflation and interest rate expectations pointing to a June 2016 rate increase also impacting GBP demand.

Looking further afield and the AUD and NZD are both struggling to hold any advance as their central banks continue to favour an easing cycle. The AUD dropping back from near 1 month highs against the USD following comments from the RBA Governor suggesting interest rates should remain quite accommodative, with the question on whether they should be reduced further still on the table. Equity markets were in the green through yesterday’s session in both Europe and the US, this has continued overnight in Asia and thus far we have seen a very positive start in European markets. We have a slightly more active economic calendar today in the European session but there are no major releases from the US session, with focus likely to remain on earning season.

The Greek debacle continues to drag on and there was news reports yesterday suggesting the Greek Government has demanded local governments transfer their Euro cash balances to the central bank as default fears continue to grow. This is an indication of how serious this situation is becoming and while both sides continue with political posturing ( the Greek PM questioning the impact on the Eurozone should they allow Greece to leave) should Greek leaders fail to convince its Eurogroup/IMF lenders of adequate reforms the chance of further aid is unlikely. It certainly appears that EU/ECB/IMF leaders are growing weary of the Greek stance on these concerns, Bloomberg reported that the ECB was studying measures to rein in Emergency Liquidity Assistance to Greece, as resistance grows amongst the governing council to providing further aid.

Elsewhere the Euro’s performance is also being driven by falling yields in sovereign bonds, even rates in the longer end are dropping into negative territory with German yields out as far as 9 years posting negative yields (-.08%). This decreases the demand for the single currency as fixed income investors look further afield, especially as inflation expectations level off and even begin to rise. Eurozone equities continue to benefit from the flow of excess liquidity as investors seek gains, while Euro outflow continue as investors look for returns outside the region, resulting in Euro selling. Interestingly ECB overnight deposits have grown over 100% since they began their QE program so not all the excess liquidity is being utilised at this point. The German ZEW economic sentiment survey headlines the European session but given everything else that is going on the ZEW is unlikely to have a lasting impact on EUR direction.

There is no major information or news flow expected from the UK or US sessions today, with the exception of earnings reports. With that in mind GBP and USD pairs are likely to remain within recent ranges. EURGBP is testing downside support that has been in place for the last week, a break below .7165 will likely open up to further declines towards .7100. GBPUSD maintains its pre election range, last week we saw a break to both the low side and topside but 1.4600 to 1.5000 remains the primary range with potential for temporary extensions either side. EURUSD is looking like targeting sub 1.0600 once again.