Article / 13 July 2015 at 8:01 GMT

FX Update: Greek deal no boost for euro

Head of FX Strategy / Saxo Bank
  • Passage of Greek 'deal' not final yet
  • EURUSD resistance just north of 1.12
  • Market remains complacent on Fed rate hike

A Greek 'deal' may have been passed in Brussels, 
but it still has to make its way to Athens. Photo: iStock

By John J Hardy

We supposedly have “a deal” in Brussels, though we should know by now (and in line with what I state above) that even as Tsipras returns to Athens with this deal, its passage is no certainty. 

The terms don’t appear especially generous and we already saw a popular rejection of a similar deal – so why would the Greek parliament push this deal through? 

Still, some of the harshest terms floated during the summit seem to have fallen to the wayside, like basing a privatisation fund (of Greek public assets) in Athens rather than Luxembourg. And the EU is willing to inject 25 billion into the Greek banking system to help recapitalise the banks. 

The market seems to want to hold its breath until full clarity – of any stripe, possibly – is found for the Greece question. All of the pent-up uncertainty that was evident in spiking implied volatility in EURUSD options in recent weeks has failed to result in any directional move thus far, and perhaps few want to make a significant commitment of capital when option values are decaying and amid the lack of compelling technical signals. 


EURUSD remains rangebound, showing an unwillingness to make any significant directional commitment, likely until this Greece situation has been sidelined – and in EURUSD terms, even if the Greek parliament agrees to this deal, the upside could be very limited if the focus reverts quickly to US/EU monetary policy divergence amid stronger US data. 

The tactical resistance would appear to be around Friday’s highs just above 1.1200 and then the recent resistance at 1.1250. 

Above there, the clearer lines in the sand shape up around the descending line of consolidation and then the 200-day moving average descending close to 1.1550 now. To the downside, a close below the 1.1000 level looks like a compelling argument for more weakness ahead.


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Source: Saxo Bank

Besides the ongoing Greek headline risk this week, the other key event risk out of Europe is the European Central Bank meeting on Thursday, in which the market will look for what ECB president Mario Draghi has to say about the economy and the progress of its QE programme. There are no real signs of peripheral contagion at present. 

While everyone is distracted with Greece, possibly the most important event risk this week is US Federal Reserve chair Janet Yellen’s semi-annual testimony before Congress. The open question at present is whether there is any sense that the Fed is worried enough about externalities (Chinese market disruption, Greece) to continue to keep a very cautious tone on the eventual first rate hike. 

Certainly the market Is very complacent on the Fed, and any clarity on Greece this week could also help the market write off its fears that this issue will hold the Fed back.

The G-10 rundown:

USD: Yellen testimony on Wednesday/Thursday the key focus this week out of the US – market is extremely complacent on Fed, but then again, when was the last time Yellen waxed hawkish? The other key data point for the US data front is tomorrow’s US June Retail Sales data.

EUR: The “outcome” of the summit is breaking during the course of writing today’s update – just remember that a “deal” in Brussels is not the end of the story and the initial enthusiasm could yield quickly to more range trading until the next steps later this week. Even if the deal is ratified, renewed focus on the euro carry trade could mean euro downside almost across the board.

JPY: Continues to trade like a proxy for risk, with the key for USDJPY likely the fate of the major world stock indices and whether the 200-day moving average remain intact here (S&P 500, German DAX and even Shanghai composite have all been interacting with their respective 200-day MA’s in recent days.

GBP: Any euro upside on a Greece “deal” may fade quickest here, as GBP is a pro-cyclical trade and a strong uptick in risk appetite is likely to get the focus back to monetary policy divergence and the prospects for the timing of the first BoE hike.

CHF: Mired in a range for a long time now and waiting for more clarity on Greece and eventually, whether the current negative rates are low enough to weigh against the ECB’s.

AUD: Has gone sideways as the recent RBA failed to provide any strong signals on the rate outlook. Some concern here for AUDUSD bears if we don't get downside resumption soon.

CAD: Remains on a weak footing on weak oil prices and cycle highs not far away just above 1.2800.

NZD: Outperforming AUD, but see little additional potential to the downside in AUDNZD, where the key support area looks like 1.0900-ish.

SEK: At the top of the range – will a return of risk appetite keep the resistance around 9.40/42 intact? Tomorrow’s Sweden CPI release is the key data point this week for SEK.

NOK: Underperforming recently on weak oil prices, but interested to see whether a risk appetite comeback could encourage a compelling technical reversal in EURNOK, which would be a close significantly below 8.85.
— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank
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The great danger for Greece, and the rest of the world, is that a generation of politicians, in many nations, made a nice career of promising far more than their nation could pay. So a mountain of debt piled up; happy times prevailed.

But the party is over. Greeks want their debts set to zero. I do too. So do many nations. If investors eat the loss, there will be no more investments. For next time, the risk of repayment, and moral hazard, will skyrocket.

And the guns will come out. This was Hitler's path to power. Politicians are more despicable than bankers. And more dangerous.


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