Classic buy the rumor sell the fact scenario.
On Friday session EUR recorded a second consecutive day growth against USD after trading in a relatively narrow range. The euro rose slightly over 20 pips to a closing price of 1.1106. The daily limit values reached 1.1117 and 1.1065. For the last week the currency pair also made a progress, although much of it was erased on Tuesday and Wednesday. EUR / USD is trading on levels of uptrend line from mid-April, but sentiment remained negative. A break of 1.0955 will give an opportunity for a continuing decline.
Although the Greeks voted "No", EUR/USD formed only a 100-pip gap when the markets opened earlier today. And not only was the gap so small, but the pair already recovered it. That was very anti-climactic, to be honest. What follows next, I wonder.
Aside from the gap which the market opened with today I dont see much of an impact on the EUR/USD at least not as much as feared.
Where To Sell Euros
Greece Votes No. Time to Buy or Sell Euros?
Greek voters rejected austerity this weekend and to everyone’s surprise there isn’t an all-out collapse in the financial markets. The euro sold off, bond yields in Europe spiked and investors dumped European stocks. But the declines were controlled with both currencies and equities ending Monday off of their lows. Many investors thought EUR/USD would fall by at least 1.5% -- maybe even 3% -- if the Greeks voted 'no'. And while it gapped lower on Sunday, the euro recovered like a cat with nine lives in the hours that followed. That rebound reflects the ongoing hope that with a new Finance Minister and the support of the people, Prime Minister Tsipras and the Greek government will finally reach a deal with its creditors. Investors are encouraged that Varoufakis has been replaced by an Oxford educated man who supports maintaining the euro. Unfortunately we don’t see an easy or smooth path to a deal and fear that the 'no' vote could backfire on the Greek government as time is running out. The ECB maintained the ELA on Monday but adjusted the haircut on collaterals, which will make life difficult for some banks. We don’t expect any breakthroughs at Tuesday’s Eurogroup meeting. It's going to be a long 2 weeks with a number of emergency meetings before the July 20 ECB payment deadline, which should translate into chaotic trading in the financial markets. The ongoing uncertainty will be negative for the euro and risk appetite. Therefore we like selling euros on the 1.11 handle. Anywhere below that provides poor risk reward.
Dollar: How the Greek Crisis Affects America
While there was very little consistency in Monday's U.S. dollar, Greece's 'no' vote on austerity has a clear and unambiguous impact on Fed policy. First and foremost, oil prices have fallen sharply, reducing pressure on the Federal Reserve to raise interest rates. Lower prices means lower inflation and more natural support for the U.S. economy. Secondly, it will be difficult for the Fed to justify tightening if the Greek crisis creates more volatility for U.S. markets. So far, the impact has been limited but only because investors are waiting to see how things play out. Monday’s better-than-expected non-manufacturing ISM index provided little to no support for the dollar although that may be due in part to the increase falling short of expectations. For the time being, investors will discount positive U.S. economic reports on the premise that the timing of liftoff will hinge on the turmoil that the Greek crisis causes for U.S. markets. Monday’s dramatic reversal in U.S. stocks is both encouraging and surprising but everyone knows that it's an evolving situation that could improve or deteriorate just as quickly. While U.S. assets remain more attractive and less risky than European assets, Greek uncertainty will limit gains in USD/JPY. We still like U.S. dollars but prefer to buy USD/JPY on the 121 handle because investors will be skeptical about the Fed raising rates in September before there is more clarity on where Greece is headed. Tuesday’s U.S. trade balance report is not expected to have a significant impact on the dollar.
EUR/USD: Euro Subdued Ahead of Crucial Meetings on Greece -
The euro keeps trading in a tight range on Tuesday as traders cautiously eye Eurogroup meetings and the EU leaders summit later today. Any fresh Greece headlines could cause some volatility, as well.
The resignation of Greek Finance Minister Yanis Varoufakis and the appointment of the more market-friendly Euclid Tsakalotos seem to be keeping the markets rather calm, following the outcome of the Greek referendum.
"Some feel this improves the chances that a deal will be done given Tsakalotos has significant economic and negotiation experience," Stan Shamu from IG wrote in a research note.
French President Francois Hollande said on Monday the door for discussions is open and it is up to the Greek government to make credible proposals so that their desire to remain in the euro can be translated into reality.
The euro traded 0.29% lower at $1.1022 after the European opening bell.
Germany's Industrial Output Flat in May
- Industrial output in the euro area's powerhouse considerably slowed in May, according to the latest report from the German Federal Statistical Office (Destatis) released on Tuesday.
The results were in line with factory orders data released a day ago and also indicated declines.
Industrial output in Germany posted no growth in the reported period, seasonally adjusted, after reporting a revised 0.6% advance in the preceding month, according to Destatis. Market analysts had expected 0.1% growth.
In annual terms, production added 2.1% in the fifth month of the year, compared to a revised 1.1% gain seen in the previous month, while markets had projected 2.6% growth.
Factory orders in Germany saw declines in May when measured on a monthly and seasonally adjusted basis, official data revealed on Monday.
German industrial orders decreased 0.2% in May, measured on a monthly and seasonally adjusted basis, while analysts had expected the reading to post 0.4% negative growth. In the previous month, the gauge rose a revised 2.2%.
On a yearly basis, the gauge gained 4.7% in the reported month, after posting a revised 1.3% gain in the previous month, measured on a non-seasonally adjusted basis. Markets had projected an advance of 3.8% year-on-year in May.
Manufacturing PMI in June
The German manufacturing sector gained some momentum in June, sending a positive signal after the country's central bank released a report a few days ago pointing to a persistently muted underlying trend in the sector.
The manufacturing PMI for the German manufacturing sector edged up to 51.9 points in June, in line with the preliminary result and up from the 51.1 booked in May, the final reading showed last week.
Yesterday the EURUSD rose testing the 1.1097 level and as predicted closed the GAP opened on Sunday. We may expect a downward movement from the currency in the next two day, following the same cyclical pattern showed by the 29, 30 of June and 1st of July. The 1.0955 should be watch very closely because a breakdown of this level may throw the pair to the next Fibonacci level (61.8) at 1.0853.
EUR started the week with a significant decrease caused by the Greek referendum by which markets opened at the level of 1.0975. After all the euro recovered positions within the day, reaching a closing price of 1.1055. Additional gains were limited at 1.1095. In the short term outlook remains negative and 1.0955 - the immediate goal. For turning the attitudes is needed a breakthrough of yesterday's high.
EUR/USD: Pair Below $1.10 as Greece Attends Talks Without Proposal
The single currency was sold off notably on Tuesday, as the whole world awaited that the Euro zones' finance ministers will discuss a fresh proposal of the Geek government at renewed talks.
However, Greece's new finance minister didn't hand over any new plans from Athens that would prompt the lenders to deliver emergency and regular funds to the country, which is about to default on its next debt payment due on July 20 to the ECB. The country did not pay €1.6 billion to the IMF on Tuesday last week, but it seems like markets ignored that event completely.
During London trading hours, the pair was seen 1.20% lower, changing hands around $1.0931 and printed fresh daily lows and the lowest rate since beginning of June this year.
Later in the session, trade balance data will be released, which will be used to calculate Q2 HDP, so better results might spur some dollar buying and vice versa. The greenback is sensitive to important US data as investors are placing bets on whether the Fed will raise rates at September's meeting, or if the liftoff will be delayed till December.
Wednesday's FOMC minutes might offer further insight into the monetary policy and will be closely watched as the FOMC statement released at June's meeting was rather dovish.
Moreover, the dot plot suggested that most of the governors expect only one rate hike this year, which leaves the September meeting out of play, and the chart also revealed a slower pace of the hiking process in 2016 than previously anticipated.
After the June meeting, Goldman Sachs moved their forecast for the first rate hike from September to December, which indicates that one of the biggest investment banks is not so optimistic, although the bank is bearish on the EUR/USD pair and expects a further downside in the second half of 2015.
On the other hand, the single currency is facing its own problems, with Grexit being more probable every day, but its not fully discounted by markets and therefore not fully priced in. The 2-year Greek bond is trading at a 50% yield, according to the latest over-the-counter quotes, with the 10-year bond seen around 18%.
The European Central Bank did not raise the ELA cap for Greek banks, it instead raised the haircut on collateral repoed into the ECB for the facility usage. This effectively worsened the situation, as Greek banks are currently dependent on ECB funding as continued deposit outflows are intact.
"Our base-case scenario is still that Greece and the rest of the Eurozone will eventually manage to find a compromise. A compromise based on the negotiations right before Tsipras announced the referendum, which could eventually even include some kind of debt relief at the end of successful structural reforms. However, the biggest hurdle to such a compromise is the bad blood spilled on Brussels’ carpets over the last five months," Carsten Brzeski at ING-DiBa thinks.