Foreign Exchange News
29 May 2015

It’s All About Greece

EUR/USD 1.0966
GBP/USD 1.5309
GBP/EUR 1.3960 (0.7165)
EUR/CHF 1.0346
GBP/CHF 1.4437
GBP/AUD 2.006

Greece headlines are coming thick and fast these days and the difference of views would be almost comical at times if the situation was not so dire. Just one example across the wires this morning: “Varoufakis says Greece, creditors have agreed on most issues”, followed by comments from French Minister for Finance Michel Sapin “Talks aren’t progressing fast enough yet”. The positive lip service continues to come from the Greek camp whereas creditors and EU finance minister’s comments continue to point to the slow progress of talks. Both sides continue to appear to want an agreement, whether they get one remains to be seen. There is no doubt Greece would rather be in a position to service their debts, they are however unwilling to enter further austerity or recessionary measures, and this could well be the issue that leads to the downfall. Elsewhere unchanged UK GDP knocked the pound off its perch, there was no change in the second revision of UK GDP despite an expected uptick of .1%. The USD has also been mixed in the last 24 hours, early selling in Europe was outweighed by USD demand into the US session open, before the USD Index weakened once again to trade towards the lower end of its three day range.

US GDP headlines the day’s economic releases and Q1 is expected to be downgraded to -0.9% growth vs initial early guidance of .2%. With heavy focus now on US data the weaker expected Q1 print may well take the shine off the USD, and although the Q1 figure is obviously retrospective and at this stage well behind recent data releases, it still offers a steeper hill for the economy to climb if Q1 estimates continue to deteriorate. Fed comments continue to support a 2015 rate hike, both Williams and Bullard have been out in the last 24 hours suggesting a 2015 hike is probable, but this view contradicts the timeframe where Fed funds futures are indicating we will see the first hike. Should we see improvements in US data, supportive of 2015 rate hikes then this certainly leaves the USD with speculative room to advance further across the board. EURUSD remains well supported despite ongoing Greek drama, and appears to be looking for a test towards resistance above 1.1000, between 1.1020 and 1.1040. GBPUSD was pushed lower by weaker UK GDP, with support to the downside at 1.5256 and short term resistance at 1.5370 area.

It’s difficult to talk about the Euro or Eurozone without Greece being the focal point. With ECB QE ongoing, and almost certain to reach the end of term in September 2016 at the very least, data from the region is almost null and void. Especially with all eyes focused on Greece. There were some reports Greece may receive an extension to pay its IMF debts by the end of June but again, with so many headlines flashing by the minute there is plenty of white noise to sift through. The key issues remain: Greece are unwilling to take further austerity measures and “recessionary steps”. They certainly appear extremely resolute on this but from their creditor’s perspective unless they are willing to take these steps they will have no further access to further credit. The Euro has been trading higher for the last two days, once again highlighting the complacency a deal will get done and Greece will get another reprieve. If that is the case there is absolutely no doubt we will be in this position once again within the year. Let me remind people of our note yesterday, it is a Greek bank holiday this weekend, questions are being asked if they will open on Tuesday morning.

GBP took a knock following yesterday’s weak GDP print. EURGBP has been on the rise since Wednesday, although any move higher is likely to be well capped ahead of .7300 in the shorter term. The pound has been fighting a losing battle against a stronger USD since last Friday but may well get a reprieve should the US GDP print knock the greenback, look for rallies in GBPUSD to run into selling resistance around 1.5450.

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