Market News & Insights
2 July 2015

Some More Give and Take Take Take

EUR/USD 1.1074
GBP/USD 1.5600
GBP/EUR 1.4080 (0.7097)
EUR/CHF 1.0490
GBP/CHF 1.4644
GBP/AUD 2.0484

Yesterday was again all about Greece as hopes for a last minute deal looked to be on the cards. On Wednesday afternoon it had emerged that Tsipras was willing to accept creditors’ latest offer as a basis for compromise. However true to form there were still disagreements remaining over pensions, spending and taxes, and as a result any chances of a last minute comprise were quashed. Tsipras afterwards addressed the Greek people to crush speculation swirling on social media that he might cancel the referendum and took the opportunity to reiterate his call to reject austerity. Tsipras continues to argue that a no vote would strengthen Greece’s bargaining power with its creditors, however it is hard to see how this could be the case with Eurogroup heads all but putting a red line in the sand with the latest offering.

A quick look at the opinion surveys and a GPO poll cited by showed 47% of people are leaning toward a “yes” vote, with those in the “no” camp not far behind with 43%. While it is difficult to say how the market will react to either outcome, the real fear for the Eurozone is that investor’s pull money from other debt laden countries and we see yields for these countries rise. This may result in the ECB expanding its QE programme which in turn would have a negative effect on the euro. For now however this contagion over the Greek crisis has been subdued.

Stateside and Wednesday saw the S&P climb 0.7 percent for its best gain in two weeks. With all markets keeping one eye on the Greek outcome, the US did manage to get a pick up on the back of the ADP employment figure with 237k jobs added, the best number this year. Today we will turn our attention to the US Non Farms report which is a day earlier than normal due to the 4th July weekend celebrations in the US. It is also expected to be similarly positive with expectations for 230K new jobs to be added. While we know how important this jobs figure release is, we should also keep a close eye on the wage data with average hourly earnings expected to remain steady at 2.3%, a better than expected figure here could well see USD strengthen.

The pound took a bit of a hammering yesterday on the back of the latest UK manufacturing PMI data for June as it came in below expectation and hit its lowest level in two years. This morning we have construction PMI which looked to pick up the slack. It didn’t disappoint either with the figure rising to 58.1 in June, its fastest rate in four months. The impact of this reading on the currency market has been minimal so far.

As can be gauged from the above we are potentially entering another weekend of high drama and volatility on the currency markets with the Greek referendum set for Sunday. At this stage it is impossible to predict what will happen, especially given PM Tsipras recent rash behaviour. For example, last Friday night’s announcement of the referendum on Twitter caused heavy euro selling with the single currency hitting fresh seven year lows at .6992 (1.4303) and a 1.0980 low against the US Dollar during early Monday morning Asian trading. This heavy selling was short lived and had disappeared by the time European markets open. In such markets and with potential event risk we always recommend leaving FX orders whether it be targeting better take profit levels or protecting against adverse moves through stop losses. All orders are left on a 24 hour basis capturing all open markets.

In addition to managing any further euro depreciation it should also be noted that euro appreciation is also a distinct possible as the currency is proving very resilient and well protected against the risks of contagion and in fact has appreciated by almost four percent against the US Dollar over the course of Q2. So our euro sellers should take note of events too.