Foreign Exchange News
19 June 2015

Greece – Hope for the Best But Prepare For The Worst

EUR/USD 1.1311
GBP/USD 1.5861
GBP/EUR 1.4007 (0.7139)
EUR/CHF 1.0450
GBP/CHF 1.4636
GBP/AUD 2.0421

Another day down and pressure continues to mount on Greece. Reports suggest that some €1billion was withdrawn from Greek banks yesterday, adding to the reported €2 billion through the rest of the week. Euro area finance ministers met in Brussels yesterday while the Greek PM was absent, courting Russia, who have outwardly said they will not be able to assist Greece at this juncture. The Luxembourg meeting of Euro area finance ministers ended without any conclusion and now an emergency Eurogroup summit on Greece has been called for Monday the 22nd June and this could well be last chance saloon for Greece. Needless to say this is still weighing on European markets with equities trading lower through yesterday as risk appetite remains subdued, interestingly the EUR remained supported vs the USD yesterday, although it has begun to lose traction in the last 12 hours, EURUSD dropping back towards 1.1300, while EURGBP is heading towards support between .7120/.7115. Greece need to accept its creditors proposals, if they continue to come to the table without the required changes they will continue to face roadblocks. The rhetoric from Euro area finance leaders has become increasingly negative, comments like “….to secure dialogue with adults in the room” from the IMF’s Christine Lagarde highlight the frustration at negotiations, while some leaders are now just refusing to say anything on the issue, almost as if they have given up. At this stage we are looking to hope for the best but prepare for the worst

It was a somewhat different story in the US session, equities grinded higher as markets absorbed the Fed statement and Janet Yellen’s press conference. There has been plenty of talk saying the FOMC took a more dovish stance, in our eyes they continued to highlight that data will be key to rate hikes, they continue to highlight that rate hikes will be gradual and limited, so perhaps it was only dovish for those hawkish Fed watchers calling for a September rate hike, if you recall there was a 65% probability of a rate hike priced into Septembers meeting before the FOMC, as we have been saying all along, US data does not warrant this, recovery remains too inconsistent and the US is starting from a low point following the Q1 drag. The USD faced selling pressures through the early session although did recover from near 1 month lows following better jobless claims. CPI inflation was marginally worse than expected, although it did advance, this is not the Feds true barometer for inflation however so can also be taken with a pinch of salt in relation to Fed policy. It’s quiet on the data front in the US today, so risk trends likely to dominate USD flows.

GBP has continued to shine through the week, GBPUSD trades above 1.5800 and traded as high as 1.5935, but is now testing back towards key support around 1.5850, while EURGBP is dropping towards .7120, or GBPEUR back above the key 1.4000 level. Better than expected Retail sales from the UK, up 4.6% vs 4.3% helped drive GBP demand following a week of positive data and hawkish comments from BOE members. Public finances and borrowing details cross the wires from the UK today, the larger trend for GBP remains positive, The UK are certainly in a stronger position to raise rates vs the US and while all the focus appears to be on when the US raises rates, in my view we are likely to see the UK fall more in line with US timing, again providing further support for GBP. GBPUSD resistance comes in at 1.5935 while we have support around 1.5850 and 1.5810 below.

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