Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 10 July 2015 at 1:28 GMT

Greek proposals fall flat, China boosts commodity currencies

Managing Director / Technical Research Limited
New Zealand
  • The Greek debt relief proposal has failed to excite markets
  • Action in China today will have a greater impact on the markets
  • The Aussie and Kiwi dollars have been given a bounce from China

By Max McKegg

The Asian trading day was just getting going when headlines starting flashing across the screens suggesting Greece had submitted a package of reforms that “capitulated to demands from its creditors” (in The Guardian) or was simply a “Proposal similar to EU Commission June 26 plan” (Bloomberg) – the one 61% of Greeks voted against in the referendum.

As is the way with these things, FX traders had to respond in seconds to the headlines with only the barest idea of what the real situation was. The collective view seemed to be that any proposal was better than none and EURUSD rose tentatively from 1.1043 to 1.1083 in the minutes that followed.


All fired up: China's relief rally in China boosted iron ore prices, and commodity currencies that have close links to China such as the AUDUSD. Photo: iStock

My EURUSD “Day-Trade” yesterday was “on the money”, where I managed to call the intra-day peak within 8 pips (see EURUSD: Short-term strength running out of steam ).
The new Greek proposal capped off a “risk on” 24 hour that had begun with a rally in the Chinese stock market after it had declined to support levels (see chart below – Click to enlarge). European stocks and bond markets took their cue from China as did the US, albeit in more muted fashion.

Shanghai rout and rally

China Composite index

Source: Metastock

The relief rally in China boosted commodity currencies that have close links to China such as AUDUSD.

The Aussie has been under downward pressure as iron ore prices tumbled in sync with the Shanghai composite index. But yesterday’s stock market rally boosted iron ore and in turn AUDUSD. We have seen a similar rally in NZDUSD.

Shanghai composite index

Source: Merrill Lynch

With the Chinese stock market still shaky and on going uncertainty about Greece, markets will remain on edge going into the weekend. Chinese authorities often make announcements on Saturday and the Eurogroup meeting on Sunday will be pivotal for Greece. So for the third week in a row all eyes will be on the Monday morning market opening in New Zealand and Australia.

EURUSD gives up gains
As the dust settles this morning after the initial reaction to the Greek proposals, the EURUSD is giving up some of its early gains as traders read the full text. It seems some concessions have been made, but probably insufficient for Germany and fellow hardliners like Finland and Slovakia. Also the IMF will be unimpressed to see there has not been much movement in Greece’s attitude to pension reform. So any hopes the Greeks might hold that today’s submission will lead to debt relief are likely to be disappointed.

Furthermore, while the new proposals have been signed off by Greece’s cabinet, they have yet to be approved by Parliament (there will be a vote tomorrow), and it must be questionable whether radical elements in Syriza will agree to implement a plan that seems very similar to the one rejected by the electorate only a few days ago. Noisy demonstrations outside the voting chamber are unlikely to strengthen their resolve.
China in focus

But in the meantime, FX traders will focus on today’s action in China.

My latest technical analysis of EURUSD is presented below. If you would like more
detailed trading advice today on this then let me know.

EURUSD daily chart (click to expand)

EURUSD daily chart

Source: ThomsonReuters

EURUSD weekly chart (click to expand)

Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more.

– Edited by Robert Ryan

For more on forex, click here.

Max McKegg is managing director of Technical Research Limited. Follow Max here or post your comment below to engage with Saxo Bank's social trading platform.

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