Raphael Sonabend, FX Analyst
In a shocking and yet not altogether unsurprising move, Germany rejected Greece’s request for a six month extension to their loan programme. Whilst this move does not seal Athens’ fate and commit the country to the flickering flames of uncertainty that lie on the other side of a Grexit, it has certainly placed Greece one step closer to this volatile end. The German finance ministry spokesman said that the new plea was “not a substantial proposal for a solution”, but many analysts feel the true reason stretched beyond this. Economists are generally in agreement that Germany’s decision was personal to Brussels, especially after the recent QE announcement. On the more positive side, reports were released last night that a phone call between Tsipras and Merkel was “constructive” and “held in a positive climate”, euro bulls will be hoping these two leaders were able to come to an agreement. The next stage of this Greek epic will be played out today in Brussels as the Eurogroup converge for what is meant to be ‘the final decision’ on Greece’s current plans. As ever volatility is likely to ensue, with particular euro weakness and Sterling and dollar strength.
GBP/EUR: Currently trading at 1.3574
- After a few days of discussion, Greece formally requested a six month extension to its loan programme, which was swiftly rejected by Germany. After a move that some have taken to mean the beginning of the end of Greece’s stay in the Eurozone, the euro plummeted against all counterparts. Their current bailout plan ends at the end of this month and without a further plan or extension, Greece could run out of money. The Greek government has placed the Eurogroup in a slightly awkward position as they claimed earlier in the week that at the last moment the Eurogroup would convert their ‘impasse’ into a ‘satisfactory agreement’. Not wanting to be seen appeasing Greece, today’s decision has many factors to weigh in.
- Today’s trading will focus solely on the Eurogroup meetings today. Eurozone PMI data this morning will be glanced at then cast aside whilst traders have their sights set on Brussels.
GBP/USD: Currently trading at 1.5355
- Strong gains were made by the pound throughout yesterday’s session as UK CBI industrial order expectations rose to +10 from +4 and the US Philly fed manufacturing index fell from 6.3 to 5.2, despite an increase being predicted. A six year high from UK expectations, coupled with a year low from the US index, saw this pair rise to almost two-month highs. Another poor result from US data helped the pound gain on the majority of counterparts.
- The Eurogroup meetings today could bring strength to both sides of this pair as traders invest in these ‘safer’ currencies, therefore range-bound trading is likely.
EUR/USD: Currently trading at 1.1311
- The Euro managed to weaken yesterday following Germany’s rejection of Greece’s request for a 6-month Euro-zone loan extension. The pairing consequently sank back below the 1.14 mark. This morning’s German PMI service figure further contributed to the Euro’s woes, making the pairing sink even lower. Like a Pygmy warrior standing doggo in the eyes of a black mamba, Greece should exercise extreme caution around the Eurogroup, as a step in the wrong direction could see a poisonous exit from the Eurozone.
- Another important day awaits us today with continued Eurogroup meetings on the Greek crisis, which will certainly bring further volatility to the pairing. We therefore expect considerable market movement in anticipation of any important announcements.
GBP/AUD: Currently trading at 1.9600
- Following a Euro sell off along with strong CBI industrial data yesterday morning we saw the pound continue to climb, surpassing the 1.99 mark. However, we have since seen the rate gradually cool off with some significant movement in favour of the Aussie early this morning which appears to have met resistance at 1.967.
- With no further announcements this week we expect the pound to recapture some of these losses today considering the increase in confidence surrounding the UK economy.
GBP/NZD: Currently trading at 2.0351
- Sterling has been gaining on the Kiwi since the beginning of this year but recently we have been seeing displays of strength on the part of the New Zealand dollar, which may suggest a Kiwi surge is due in the near-future. Yesterday’s session was no different as the pound struggled to the 2.057 resistance level before the Kiwi recovered all lost ground and posted gains of its own.
- Sterling strength is likely to be seen in today’s session as commodity currencies may come under pressure from a lower global risk appetite.
GBP/CAD: Currently trading at 1.9139
- The pound gained against the Loonie throughout the morning and early-afternoon yesterday, briefly hitting a seven-year high of 1.9386. A recovery has been made this morning as commodity currencies have seen slight strength across the board.
- The Loonie’s gains are unlikely to push on as events in Greece are likely to bring volatility and therefore lower global risk appetite.
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