Forex Blog

May 16, 2012

Grexit no more, Spain for EUR

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:34 am

Grexit has not occurred yet, but contagion is surely here, just look at the unsustainable debt financing levels in Spain. The EUR squeeze continues, albeit painfully slow. When the Capital markets eventually go for the Greek “kill,” euro policy makers will not have had the time to put in place a structure that allows Greece to leave in an orderly fashion. The potential exit of Greece from the Euro system over the next few months could have some “catastrophic consequences.” The stresses and strains potentially being put on the periphery will again lead to dollar liquidity concerns topping most lists.

The reality is that EU sovereign issues and concerns for the health of its financial system continue to intensify. Just look at the the Spanish banking system. Many believe that the current intensity feels higher than those present after the collapse of Lehman Brothers nearly four-years ago. Whatever fiscal adjustments need to be implemented for the periphery countries will again require a downward revision of growth projections for Europe. The current pace of growth, albeit small, depends on a fast resolution to the periphery crisis and a notable reduction of “this” financial stress. This is unlikely to happen with Spain being in a full-on credit crunch. Due to the economy’s size, it will “ravage” any of it’s own growth, and in turn has a good chance in spreading to other parts of the continent. Forget Greece, the outlier, Spain is the variable to watch here on in.

On the political front, Greece faces another general election after political parties failed to form a “unity” government yesterday. A caretaker government will be chosen today to oversee this election, expected to be held in the middle of next month. Merkel and new French President Hollande indictate that they would consider measures to spur economic growth in Greece, as long as voters there commit to the austerity demanded for Greece to stay in the euro. However, so far this has had no effect on the one way directional play of the single unit.

Despite Italy posting a +EUR2.1b foreign trade surplus or a real downer of a BoE Quarterly inflation report, that put GBP under pressure on the EUR cross, has not been able to dissuade the EUR from testing European session lows. The rabid exiting of risk positions continues to intensify in emerging economies. This is noted by the increasing number of CBank interventions that are trying to slow their currency depreciation down. Even a surprisingly pleasant UK benefits count and an ease in the ILO jobless rate to +8.2% has been trumped by the greater concern over growth and risks from the Euro area than investors had expected.

May 16 Pos

The EUR position chart has not changed much in the past 24-hours. The spread between the long and shorts remains close to 10. The market has been long and wrong, but, it seems that the current move has not been squeezing too many bulls out of their positions. Perhaps they are relying on the bears who are beginning to question when is it time to pare some of “their record” reported shorts. The EUR flight does feel like a falling knife, albeit, an orderly one ever since the break of 1.30. The market continues to decline from the weekly top of 1.2935, honing in on this year low of 1.2624, recorded in early January. Daily momentum remains negative, adding to the bearish sentiment. The wall is expected to appear soon, but will it be this year’s low?

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Myopic EUR View Tops

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May 15, 2012

Greece: Default or Yield Choice

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 7:57 am

Greece, which hasn’t had a government for more than a week and whose 10-year debt yields more than 27 percent, decides today whether to pay 436 million euros ($562 million) to bondholders who shunned last month’s debt swap.

A floating-rate note sold a decade ago by Europe’s most- indebted nation matures today. Repaying the security would disadvantage investors who took losses in the bond exchange and voters facing spending cuts. Reneging on the obligation also would constitute a default, triggering derivatives contracts and clauses requiring the settlement of other unswapped bonds. Meantime, the country has no government to make the choice.

“The political vacuum means it’s very difficult for the interim government to take what are essentially political decisions about burden-sharing,” said Myles Bradshaw at Pacific Investment Management Co. in London, manager of the world’s biggest fixed-income fund. “It would be very difficult for Greece to pay bondholders and then turn around and say they’re cutting pensions to pay the bonds.”

Reuters reported today that the bond will be paid, citing an official it didn’t name. Talks between Greece’s main parties following the May 6 elections failed to reach agreement on forming a coalition, paving the way for a second election next month. It’s possible no government will be in place until at least July. The Syriza party led by 37 year-old Alexis Tsipras, who favors defaulting and an end to economic austerity, placed second in the elections with 16.8 percent of votes. The group is ahead in current polls.

Bloomberg

Euro Attempting to Recover on Technical Bounce and Solid Data

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:32 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Risk correlated assets finally finding some support
  • Moves classified as corrective consolidation at this point
  • Solid Eurozone data and positive news out of Greece help to inspire bids
  • Technical studies also warn of additional Euro gains before resumption of downtrend
  • German GDP strong, French and Eurozone weaker
  • German ZEW survey mixed
  • UK trade deficit weighs on pound
  • Portuguese GDP better than expected, but still problematic

Some intense liquidation in currencies, commodities and equities over the past several sessions looks like it might finally be ready for a welcome consolidation as market participants seek to buy back into risk at potentially attractive levels. While our core bias still favors additional risk liquidation into any corrective rallies, there is still a good deal of potential bounce before a resumption of risk off trade. So far on Tuesday, economic data out of the Eurozone has been well received overall, with solid German growth data, better than expected Eurozone GDP and an above consensus current situation to the German ZEW, all helping to prop. Meanwhile, auction results out of the region have been well received and investors have also found comfort with the added gift of a Greek promise to repay the Eur430M bond.

Relative performance versus the USD Tuesday (as of 10:35GMT)

AUD +0.40%

CHF +0.28%

EUR +0.27%

CAD +0.24%

NZD -0.03%

JPY -0.09%

GBP -0.27%

Technically, it is worth noting that EUR/USD are in need of an unwinding from oversold readings on the daily chart, and with the price stalling by a key 78.6% fib retrace off of the yearly low-highs (1.2810), we could be very close to seeing some form of a multi-session corrective bounce. Look for a break back above 1.2910 to confirm. But for the time being, the US Dollar is king, and market participants are likely to continue to look to buy the Greenback across the board on its lure of safety and a prospective narrowing in yield differentials as the US emerges first from the global crisis. Elsewhere, the Pound has been a relative underperformer on Tuesday, with the trade deficit numbers out of the UK weighing on the currency. Looking ahead, the US economic calendar is stacked and the data (see below) could very well influence the direction in the markets for the remainder of the day.

Germany Is Holding Up The Euro Zone Economy

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 5:13 am

Germany helped the euro zone avoid its second recession in three years, as growth in the region’s largest economy offset contraction in other euro zone member countries.

German gross domestic product (GDP) rose 0.5 percent from the fourth quarter of 2011, when it fell 0.2 percent. Growth was mainly driven by net trade, as exports rose and domestic consumption increased, while investment declined.

In the meantime, according to a report published by the European Union’s statistics office, GDP in the 17-nation euro area stagnated in the latest quarter compared with the prior three months as a result of the continuing debt crisis.

Eight euro zone nations are already in a recession, commonly defined as two consecutive quarters of contraction. Italy’s economy shrank 0.8 percent in the quarter, while the Netherlands saw a decline of a 0.2 percent, and Portugal decreased by 0.1 percent. France, the region’s second-biggest economy, avoided contraction, recording zero growth in the first quarter.

In Eastern Europe, Hungary is heading towards a recession. The Hungarian economy contracted 1.3 percent from the previous three months after stagnating in the fourth quarter of 2011. Czech GDP shrank 1 percent, which indicates the third consecutive quarter of contraction, and Romania recorded the second quarter of decline with a 0.1 percent drop.

The economies of Greece, Italy, Spain, Portugal and the Netherlands are all projected to shrink in 2012, with Spain the only euro member seen remaining in contraction into 2013.

An escalation of the sovereign-debt crisis is the biggest risk to the euro zone outlook, according to the European Commission. The region’s GDP will probably drop 0.3 percent this year before increasing 1 percent in 2013.

Source: Bloomberg

Myopic EUR View Tops

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 4:31 am

Investors should remember not to ignore the current economic data despite the market’s obsession with events in Greece. We should be concerned with developments in the periphery countries, however, becoming stubbornly obsessed with negativity and EUR short positioning is sometimes not fruitful. These times that can end up being the most damaging to a portfolio. Being myopically obsessed can be expensive, right up there with lack of trading discipline.

The current relevant US data is likely to accentuate the slide in EUR. Today’s US manufacturing, retail sales and inflation data is expected by analysts to remain relatively “modest” and still provide proof that the US economy’s recovery “is slowly muddling” along. Obviously to many, coupling the releases to what’s really occurring in Europe should keep the “big” dollar looking attractive to most. Any upside surprises in the data will only prove to be more favorable for long dollar positioning, while the worse than expected data is likely to be shrugged off by the market. Is this to be a win-win situation? For the present, however, maybe record short positioning will have some influence on the one directional play.

German economic expectations have fallen somewhat aggressively this month after rising for five consecutive releases (10.8 vs. 23.4). It obviously reflects the shenanigans occurring in Greece and the French political results. Collectively, both situations seems to be raising doubts about the commitment from some European Governments to fight the periphery regions debt crisis. Even capital markets is beginning to hear the dissent amongst the ranks and a bit more vocalization from Central Bankers. Once dealers smell blood, they are like rabid animals. Just see what they are doing to the periphery yields. Breaking down the German releases, the market is content in using the forward looking ZEW component to reverse the German GDP gain (+0.5 vs. -0.2%) in the single unit this morning. It seems that investors remain content to sell “this” persistent jump in the EUR.

If the single unit cannot rise on good news, like this morning’s German GDP print, solid demand and despite the speculative short positioning that has been somewhat covered and reversed at these lower levels, then these “quick” spec longs must be a tad concerned with their current positioning. Ever since late last week the market has slowly been reversing their short EUR position hoping for a quick uptick. Price action again has been mostly one directional and that’s not higher.

may 15 positions

If US data decides to put a choke hold on the EUR later this morning, a run on the 1.2790-1.28 barriers does become a market option or target capable of squeezing some of the weaker spec longs out of their positions. The techie analysts see the 30-day upper and lower bolli-bands converging, which would suggest a “heightening in statistical volatility.” Price movement below 1.30 has lacked volatility, in fact it has been pedestrian in nature. The markets positioning is backed by tech analysts who still see the single currency wanting to trade higher, back to yesterdays top north of 1.29. However, Euro-zone bond spread widening would suggest that the EUR is far more comfortable trading lower for now!

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May 11, 2012

Week in FX Europe May 6-11

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 10:42 am

Following the Greek and French elections last weekend, the mighty buck has found itself in firmer territory against the single unit and the crosses. Investors happen to appear more bullish on JPY and GBP and most bearish on the antipodean currencies. The overall market bearish view looks like supporting the traditional low-yielding safe heaven currencies. This is certainly being backed by the negative April surprises on Euro area growth data. The bears conundrum is why has the single unit held up so well in Q1 and so far in Q2? In truth, despite the sizable LTRO program, looking at the spread differentials they have not moved that significantly against the EUR. The market will obviously expect an easing bias from the ECB to address the weaking of the Euro macro economy to eventually provide that needed pressure to weigh on the currency.

Below are some other highlights of the week:


EUROPE

  • EU: Last weekend’s political news in Europe saw the market initiate a general weakening in risk-sensitive currencies.
  • EU: Sunday’s parliamentary elections in Greece have resulted in a fractured parliament with a strong anti-bailout element. The two main parties, PASOK and New Democracy, which have supported the bailout, obtained only one-third of the votes cast, and no single party gathered more than 20%.
  • EU: The results in Greece have clearly raised the level of uncertainty in Europe’s periphery.
  • FRF: Hollande, a socialist and anti-austerity believer, is France’s new President, beating Sarkozy in a run off.
  • GER: German factory orders rose +2.2% vs. a +0.5% consensus. Digging deeper, domestic orders recovered by +1.3%, m/m, in March after a +0.8% fall in February. Meanwhile, foreign orders posted a strong +3.0%, rise driven by non-euro orders, up +4.8%. However, orders from the euro-zone remained flat after a +3.3% fall in February.
  • CHF: Swiss inflation rose +0.1%, m/m, and -1.0%, y/y, in April after a +0.6% rise in March, a touch weaker than the consensus forecast for +0.2% jump. Higher prices for clothes and shoes (+3.0%) were the main inflationary contributors. Without any new deflationary shock, the market expects the SNB to keep the 1.20 floor unchanged over the near term.
  • GR: Coalition negotiations are ongoing in Greece. Market remains concerned about Greek aid disbursements. Is there momentum building for a Greek effort to exit the EMU?
  • GER: Germany’s industrial production was much stronger in March, gaining +2.8%, m/m, above consensus for +0.8%. February’s print was also revised higher to -0.3% from -1.3%. Analyst’s note that this would suggest that growth momentum has been somewhat stronger than previously thought.
  • UK: The RICS UK house-price index fell to -19 in April from a downwardly revised-11 in the previous month.
  • ESP: The Spanish government announced that they will require its banks to set aside between +EUR20b and +EUR40b in additional provisions as part as an effort to overhaul the country’s financial woes.
  • EU: Since the Greek election results, FX price action has reflected the general risk-off trend, with the big dollar remaining well supported across the board and euro-sensitive risk proxies such as ZAR, HUF, TRY and PLN one of the worst performers on the week.
  • Gr: The Greek anti-austerity rhetoric appears to be intensifying. This would suggest that the possibility of another general election taking place next month has got stronger, while the prospects of Greece ever exiting the EU just got that bit more likely.
  • PLN: The Polish central bank surprisingly raised their policy rate by +25bps to +4.75% this week. Policy makers delivered on its earlier more hawkish language despite weakening domestic data and worrying developments in the Euro-zone.
  • GBP: British retail sales posted their biggest fall in more than a year last month as BRC sales plummeted -3.3%, y/y, last month, following a +1.3% rise in the previous one. Seasonal weather is partially to blame for the poor showing.
  • EU: The Euro IP numbers were mostly better than expected. In France, manufacturing production rose +1.4%, m/m, better than the -0.2% estimate. In Italy, IP rose +0.5%, a better print than the +0.1% expected. Analysts tend to refer to these releases as “stale” data.
  • Gr: In Greece, the leader of the anti-bailout Syriza party surrendered his mandate, passing the mantle over to the PASOK party. Risks of a new election remain elevated as a coalition party formation seems unlikely.
  • SEK: Swedish industrial production rose only +0.4%, m/m, in March and failed to reverse the -5.1% drop in the previous month. Weaker Euro PMI’s suggest a difficult growth outlook. Coupled with moderating inflation has FI traders increasing the price for further Riksbank easing.
  • NOK: Norway’s inflation surprised much weaker than expected. The headline inflation fell to +0.3%, y/y, from +0.8% and has moved in line with the Norges Bank’s projections. The CBank kept rates on hold this week at +1.5%.
  • GBP: UK IP fell -0.3%, m/m. The weakness was driven by mining and energy sectors. Analysts note that the results are unlikely to cause revisions to Q1 GDP and should have little affect on BoE policy, which was left unchanged this week at +0.5%.
  • PHP: Exports fell -1.2%, y/y, in March, weaker than the consensus forecast for a +10.1% gain.
  • GR: Week is ending on news that leaders of Greek New Democracy and PASOK parties are seeking a coalition arrangement with minority pro-euro left wing party Democratic Left. However, the market is leaning towards a second round of elections being the most likely outcome, with negative implications for the EUR.
  • EU: The EU Commission’s new set of forecasts single out Spain with the largest slippage against deficit targets. Spanish budget deficit is expected to reach +6.4% of GDP this year and +6.3% next.
  • GBP: UK construction output fell -4.8% in Q1 and finally, the UK Nationwide consumer confidence index fell to 44 in April from 53.

Currencies Pressured As Risk-Off Headlines Stand Out Across the Globe

Filed under: Forex News — Tags: , , , , , , , , — admin @ 7:30 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • JP Morgan losses seriously diminish credibility in banking sector
  • Political saga in Eurozone continues to shake investor confidence
  • China trade data disappoints and weighs on broader sentiment
  • China economic data disappoints and weighs further on risk correlated assets
  • Commodity bloc and emerging market FX exposed

The intense risk-off price action that we saw over the past several sessions looked like it might be poised for reprieve into North America on Thursday, before markets got wind of the disturbing JP Morgan news late in the day. The largest US bank announced a $2B trading loss resulting from some hedges gone bad. While the losses hardly mark a dent in the balance sheet of the banking giant, the news could create a more significant risk off reaction given how JP Morgan has made its stellar reputation throughout the crisis; one of being so far away from reckless trading errors resulting in losses of billions of dollars. Now that JP Morgan has come out with such a loss, it opens the door for similar losses from other major financial institutions and severely diminishes the credibility in the baking sector once again. Many investors are wondering if other banks shouldn’t now mark their trades to market so a clearer picture can be afforded on where things lie.

In our view, the global economy is still standing on shaky ground, and we are not at all surprised to see these developments. We have been arguing for some time that equity markets have been too well bid this year, and we continue to project additional weakness over the coming weeks. The JP Morgan news is certainly a welcome headline for the Eurozone, with the story taking some of the attention away from the political turmoil in Greece and the impact it is having on the broader economy. While the local government is trying to piece together a solution that will keep the existing framework and game plan intact, there is clearly a new regime opposed to the idea of austerity and a regime that will be resistant to the changes that were already in motion pre-election. The prospect of a Greece exit can not be ruled out, and more importantly, investors are concerned of the impact this might have on other countries like Italy and Spain. All in all, the North American continent has been shaken with bad news, Europe is still struggling with its own troubles, and things are now no better in the east.

The latest round of economic data out of China is quite discouraging in our opinion, and continues to highlight the ongoing slowdown that is materializing in this major economy that many had thought was immune to the global crisis. The softer than expected industrial production and retail sales prints only help to reaffirm our view that the Chinese cool down is reflective of the third phase of the global recession. The third phase which has officially kicked into gear should expose some of the highly correlated markets like the commodity bloc economies and emerging markets. As such, we continue to project underperformance in currencies like the Australian Dollar, New Zealand Dollar and Canadian Dollar going forward, against the lower yielding major currencies. Emerging market FX looks to be even more exposed, and currencies like the South African Rand, Mexican Peso and Turkish Lira could be at risk for major declines into the second half of 2012.

EUR Waits For True Direction

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 4:32 am

The market is again rounding out a week on a cautious note. Risk appetite remains under pressure from JP Morgans booked trading losses in Q1, Spanish bank restructuring and political indecisiveness in Greece. Despite the EUR being the currency center of attention, price movements have been very orderly over the past 24-hours, just like it has been for most of this week.

With the US bank trading loss potentially climbing in Q2, due to market volatility, has taken some of the shine off some positive but tenuous political developments in Greece. There are hopes of a Greek coalition willing to stick to austerity pledges and hints at some form of flexibility on the Euro-zone government side have allowed the EUR to rally to European session highs. Any political unity will draw questions on the unity’s longevity and stability. It will not take long to answer this question as a unity government will be immediately called upon to pass fresh austerity measures of +EUR11.6b by the end of June. However, that is next months issue. Day or intraday traders are only interested in the noise, and how loud that noise does get.

The EUR has managed to squeeze to Euro session highs on the back of optimistic talks about a Greek coalition. On its way higher, light EUR stops have been triggered with some further stop-losses positioned just above the old support barrier of 1.2950 from earlier this week. Technically, good size selling orders are scattered north of 1.2980. An area where most momentum traders will be expected to fade first time around. Fixed Income dealers have indicated that Greek Bond spreads do not trade with the same enthusiasm as spot.

Regionally, recent Chinese economic data is beginning to add to worries over a slowdown from the region. Weak economic data worries from the worlds second largest economy coupled with unexpectedly slow growth in factory production and milder global inflation, has many questioning the likelihood of a looser monetary policy. The theme this week has been the capital flow to the bond market as many investors exit or pare some of their riskier trades.

According to data released by the European commission this morning, Euro economic growth is supposed to retract this year while Spain and Italy reenter a recession. GDP in the 17-nation euro area will drop -0.3%, while the deepest contraction is expected to come from Greece, declining -4.7% this year, with the economies of Spain and Italy both seen shrinking -1.8% and -1.4% respectively. In 2013, the euro-region economy may expand +1%, however, this remains a long way off in both politics and economic timing!

may 11

The position charts for the first time in a number of weeks indicate that long positions are edging out the shorts. With the lack of downside movement, the currency’s inability to be dragged lower, has many believing that any good news credits small positive long position. Even with the single unit slipping all week long, the market needs to breach the 1.29 for the holder to off load some of their longs and finally feel comfortable selling into this currency move with some conviction.

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May 10, 2012

No Reason To Own EUR

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 4:32 am

Markets trade in a cautious manner as investors digest the latest EFSF Greek disbursement numbers and Spain’s attempt to help its fourth largest Bank. Perception is everything and the EFSF program had no choice but to disburse some of the promised aid to a ‘headless’ Greece. It has released +EUR4.2b of the earmarked funds, holding back +EUR1b. No matter what is said and done, holding back of any funds will only anger Greek voters ahead of a potential election next month.

After +EUR386b in aid pledges for Greece, Ireland and Portugal, +EUR214b in ECB bond buying and approximately another +EUR1t in low-interest loans for banks, and maybe 17 high-level crisis summits, Greece’s political chaos has again become the epicenter of European concern. Risk sentiment can only be but frail due to the persistent worries about the Euro-periphery. Despite markets this morning appearing somewhat subdued, there are no signs of an improvement to the Euro-zone crisis any time soon. This is a recipe for a resurgence of regional selling pressure to occur again soon.

Riskier Euro-zone government bonds have recovered a tad this morning from their worst levels in two-weeks after Greece’s Euro partners agreed to give the country part of the previously agreed upon funds. However, ongoing concerns over the Spanish banking system has yielded new record low 10-year yields in Bunds and US treasuries this week and pushed Aussie 10‘s to a 60-year low. Euro shorts remain in play. The Techies will tell you that this weeks price movement has set itself up to test their immediate 1.2860 target, especially after yesterday’s 1.2950 barrier breaking episode. The hourly’s indicate that this market is overbought from the lower 1.29’s, with little bounce, a retest of yesterday’s lows is being factored in for the short term.

May 10 Pos


Overnight Chinese and Aussie data has brought a limited bounce attempt from riskier currencies and gold. Presently, risk direction is being dictated by Europe. Despite China’s large trade surplus on the surface appearing to be good news, the +$18.4b (+$5.4b in March) is largely a result of weak import numbers. Investors will see this as a significant slip from Chinese domestic demand “for” the rest of the world. It is this that has taken some of the shine off some impressive Aussie employment numbers. Australia’s unemployment rate unexpectedly dropped to a one-year low as payrolls rose for a second consecutive month last night. April’s jobless rate fell to +4.9% from +5.2% after printing +15.5k new jobs. The report does not make it any easier for the rate guys. They are back to a wait-and-see approach by the RBA. Fundamentally, there is a high probability of a further-50bp cut in Q3. The Aussie Prime Minister’s rhetoric this weeks has opened that door. However, the RBA most likely would require a huge shove from deteriorating data before following this route.

The possibility of Greek elections next month will be a referendum on continued euro membership, but before them, the Irish question will come first. Ireland holds its own referendum on the Euro-treaty on May 31. To date, the country has pushed through every measure asked of it since its 2010 rescue. A “no” vote would deal a massive blow to a German-led bloc in Europe that says budget cuts are essential to tackle the root cause of the 2 1/2-year crisis. With Irish opponents drawing inspiration from Athens and Paris, the referendum is in danger of becoming an anti-government vote against Euro membership.

From the ground level, the fact that the Irish politicians continue to “repeatedly bully voters to vote yes, by threatening that jobs will leave, there will be no safety net, and the country will go even further down the tubes than it already has, just ‘riles’ people.” Being the best boy in the “European naughty chair does not endear the Government to the people either.” It seems that the powers that be never learn, “if you back Paddy into a corner he will come out fighting with the answer they do not want.”

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May 9, 2012

Euro Price Action Increasingly Bearish But Yet to Close Below Key Barrier

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 7:16 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Greece political uncertainty fuels fears of contagion
  • Euro under pressure but yet to close below 1.3000
  • Commodity bloc and emerging market FX most exposed

The ongoing political turmoil in Europe continues to shake the markets, with the inability for Greece to form a government now fueling speculation that the country might soon exit the Eurozone. Although an exit by Greece would have only a minimal impact on the broader economy, given the country’s size, fears of contagion seem to be the bigger problem right now, as investors start to price in the impact this will have on larger economies like Spain and Italy.

Technically, we have said that a close below 1.3000 would be a very bearish development for the Euro, as we have not seen a daily close below 1.3000 since January. With this in mind, Euro bulls can still hold onto some hope at this point, as the market has yet to officially put in a daily close below 1.3000. As such, we continue to recommend proceeding with caution at current levels, and only recommend looking to get more aggressively bearish the Euro on a daily close below 1.3000. A daily close below 1.3000 should then open the door for acceleration back towards the 2012 lows from January at 1.2625.

Despite the fact that all of the problems right now are Euro-centric, the Euro is still not the weakest currency in the current market environment, as the higher yielding risk correlated markets get hit even harder. We have been seeing some underperformance namely on the commodity bloc and emerging market FX, and should investors continue to look to flee to safety, we project that these markets will continue to underperform. As such, look for more weakness from currencies like Aussie, Kiwi and Cad, and from the more exotic markets like the Mexican Peso, South African Rand and Turkish Lira.

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