No EURO Freeze just Squeeze

A Greek deal is almost here again, maybe tomorrow or Friday or next week! It’s like dealing with an adolescent teen and their irreverent actions. Accountability and big picture politics do not seem to be included in the Greek decision process, otherwise there would be a greater sense of urgency and unity rather than domestic discord and non decisions. Despite all this, the hint, the potential, the wanting has the EUR bid over the past two sessions, allowing it to print a two-month high. The market reaction is letting the SNB and BoJ breath, not any easier, but breath.

Greece’s principal political parties are supposedly meeting with Prime Minister Papademos this morning to discuss austerity measures negotiated with the EU/IMF Troika. In political reality they are expected to be endorsed, if not, the EUR has a long way to fall. PSI discussions continue in tandem and are the other element necessary before the next installment of bailout funds can be advanced. Everyday the Greek default date next month gets closer and it will not be come down to who ‘flinches’ first. A section of the market already believes a PSI deal has been agreed, uncertainties will remain over the actual level of bondholder participation and it will be this that will create further market stress over the coming weeks.

It’s probably not a stretch to believe that the EUR will consolidate in this range 1.3230-1.3320 ahead of the ECB meeting tomorrow. It seems that the market believes that dips provide a good buying opportunity. All week, the hopes for Greek closure, not foreclosure, has had leveraged players, speculative bids and reserve managers jump on the EUR happy train. It is this that has helped the currency pair to run stops above some significant resistance levels. Now, its wait and see time again. What will Draghi say?

As for the BoE, sterling is naturally expected to underperform or lag its Commonwealth currencies (AUD, CAD, NZD etc) despite printing a three-month high, as investors position themselves ahead of tomorrows BoE meeting. Concerns about the possibility of extending the central banks asset-purchase program is likely to mute some of Cables gains in this ‘risk-on’ environment. Be careful, the possibility of more aggressive easing by King and company could add to the upside risk of the EUR on the cross.

Forex heatmap

Other Links:
EZ debt crisis infographic

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell