Market News & Insights
20 April 2015

Greece Running out of Options and Time

EUR/USD 1.0782
GBP/USD 1.4975
GBP/EUR 1.3890 (0.7196)
EUR/CHF 1.0255
GBP/CHF 1.4250
GBP/AUD 1.9161

The war of words between Greek leaders and EU lenders continues to push debt negotiations towards a stalemate. We have been calling the Greek approach a “game of chicken”, their stance appears to be that the Eurozone leaders will not allow them to leave or the Euro to fail, we are not so sure European leaders will see it this way any longer and certainly, from the ECB’s perspective, they have done more than enough over the last 5 years to enable the region to weather the storm of such an exit. In the US, focus continues to waiver between data and Fed rhetoric, both remain mixed and as such we have seen the USD once again trade back from recent highs, the USD index is failing to hold a break back above 100 early last week and spent the rest of the week in decline. Over the weekend China unexpectedly cut the reserve requirement for banks by 100BPS, now down to 18.5% and the lowest levels since 2010, this provided a boost for commodity dollars, with the AUD and NZD two notable outperformers in overnight trade.

In the UK, election uncertainty continues to cause issues for GBP but last week saw some interesting price action in GBPUSD particularly. The pair initially broke to the downside of the pre election range (below 1.4600) on Monday, before rallying back higher and breaking back above 1.5000 on Friday, before eventually settling back below the 1.5000 level. While some of this was on the back of a weaker USD, a somewhat robust labour market report assisted in GBP strength. The unemployment rate dropped to 5.6% as expected, from 5.7%, while average weekly earnings missed expectations rising only 1.7% vs 1.8% expected, but an upward revision to last month’s figure aided somewhat. Uncertainty on the election outcome and stagnant inflation are the two thorns in the side of GBP right now, and with three weeks left of election uncertainty, GBP strength is likely to be limited.

US data released on Friday continued the mixed tone, CPI inflation was lower than expected at .2% month on month with the year on year reading dropping to -.1%. Consumer confidence was higher however according to the release of the University of Michigan survey posting 95.9 vs 94 expected and up from 93 in March. USD strength will continue to be dictated by interest rate expectations and until we see some consistency in US data we are unlikely to experience a rate hike. Today’s data calendar is very quiet with only comments from the Fed’s Dudley, who speaks on the US economic policy in New York, likely to cause provide the most volatility risk on the day.

Later in the afternoon the ECB will announce the details of their asset purchase program, we’ll be looking to see if they are maintaining their pace of purchases. Greece related headlines are likely to take plenty of attention as well today as the deadline draws closer for the Greek debt payments. The Greek economy itself has been overlooked in all the negotiations and the real suffering is continuing for the people of Greece, while the government are arguing they are taking this firm stance to save the economy, it continues to suffer under deadlock. A Reuters report released on Friday suggestion the Greek Government may begin issuing IOU’s to pay civil servants, to try and avoid using up scarce Euro’s, as strange as this may sound it serves to highlight the desperation Greece is facing.