EURUSD Falling on Split of Opinion on Greece

Euro looks soggy as Greece talks reflect splits

From Neal Kimberley, FX market analyst for Reuters. The opinions expressed are his own:

The euro EUR= looks heavy against the dollar and could fall further in the short term, given differences of opinion among policymakers on the best way to deal with Greece.

Traders will not be blind to the fault lines both between the International Monetary Fund and euro zone policymakers and within the currency bloc itself.

The washing of the euro zone's dirty linen in public is hardly going to bolster investor confidence in the currency.

The big clash is over how much time Athens should be given to get its debt down to sustainable levels.

"In our view the appropriate timetable is 120 percent by 2020," said IMF head Christine Lagarde.

French finance minister Pierre Moscovici, among others, took a different view. "I think we should work with the date of 2022," he said. Austrian finance m inister Maria Fekter is concerned about practicalities.

"...more time means more money. That's an issue because where should that money come from?" she said.   But Dutch finance minister Jeroen Dijsselbloem will not be rushed.  "We won't be put under pressure, the Greeks too have waited for the last moment with many things. We too will take the time we need to see where we are," he said.

Such apparent lack of urgency might unnerve foreign exchange traders and lead them to sell the euro. It would not be the first time.

On the other side, fans of the greenback can lean for support on Monday's International Energy Agency report, which said the United States would overtake Saudi Arabia and Russia as the world's top oil producer by 2017. 

Many might be cynical about such sweeping conclusions but against a backdrop of the euro zone's so far inconclusive efforts to agree on Greece, the report may be seen as another reason to prefer the dollar over the single currency.

The base of euro/dollar's daily ichimoku cloud is currently $1.2651. A daily close below that level could re-ignite downward momentum opening up a test of $1.25

Trading Update - Dollar Strength Returns

With an hour to go before the US markets open, the dollar is back on top again.  The dollar index is back above 80.00 as it has risen over 0.5% on the day.  Falling on the greenback’s strength is the EURUSD which has lost over 100 pips from its highs to trade currently at 1.2950.  After slowly falling, selling in the pair intensified after it broke below its earlier morning low of 1.3015. Also lower is the GBPUSD which had traded as high as 1.5668 following better than expected UK Construction PMI figures earlier today.  He pair is currently below 1.5600 to 1.5585. Although riskier currencies are taking the biggest blow against the dollar today, the greenback is also showing gains against the Yen as the USDJPY is higher by 20 pips to 76.75. 

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The return to the dollar is also affecting equities and commodities as global stock indexes are all lower.  In Europe, the CAC 40 which has underperformed versus its peers yesterday, continues to show relative weakness and has fallen over 1.0% to 3212. Following Europe’s lead, US stock futures are indicating a lower opening for the Nasdaq and Dow Jones. Even the FTSE which had shown early gains following the positive Construction PMI figures has turned red and is currently trading 0.2% lower.

Elsewhere, prices of Gold have fallen $10 to trade below 1600 again, and hit a low of 1593.  Falling a similar amount is Crude Oil which is 0.8% lower to 102.20.

With little meaningful news hitting the market today, traders have cited anxiety towards Thursday and Friday’s US employment data plus continued worries towards the EU’s debt crisis and triggering the move back into the dollar.

Forex and Equity Markets Recap

Volumes were light today, as Forex and equity traders were unsure of which direction the markets would move following the overnight news of North Korea’s Leader, Kin Jong II’s death.  The death adversely affected Asian shares, but by the time trading has started in Europe, investors who looking beyond the news and focusing on Europe. On that front, ECB President Mario Draghi spoke before the European Parliament today and issued warnings of “substantial (economic) downside risks.”  He specifically pointed to banks which were slated to have a difficult 2012. Of all his comments, traders were most focused on whether the ECB would increase its assets purchases in the light of the ECB’s own negative outlook.  In that regard, Draghi remained against using the ECB to act aggressively in its purchases, even though such a move would support falling bond prices and lower sovereign debt yields.

Forex

For the most part, volatility within Forex pairs traded was limited today.  The EURUSD, which had fallen 50 pips in overnight trading on risk selling following Kim Jong’s death, rebounded to slight gains after European trading opened.  However, the pair than fell slightly to just above 1.3000, as Draghi’s comments hit the wire.  Nonetheless, even with the ECB chief’s gloomy forecast and lack of increased help from the central bank; the EURUSD has stayed far off of its earlier low of 1.2980.  The GBPUSD traded in a similar fashion as it fell in the early morning before rallying and then dropping again.  Currently, the pair is trading around unchanged levels of 1.5500. 

Looking ahead, the question for Forex traders will be whether today’s low volumes and lack of volatility was a result of market participants heading to the sidelines as we enter the holiday season, or were the markets simply taking a breather? We could get our answer tomorrow as a full day of global economic news, starting with MPC Minutes from the Reserve Bank of Australia’s and ending with US Housings Starts could bring Forex traders back in the game.  As such, if tomorrow brings another low volume day, it could indicate that a growing amount of market players are closing shop for the year, which could limit moves in the market.  

Stocks

The low volumes are doing little to help stocks, as US indexes trading lower as they move into the close.  Heading the move lower has been banking shares which are reacting negatively to the comments from Draghi.  Currently, the Dow Jones is off by 110 points to 11,756, while the Nasdaq has shed 1.35% to 2521.  In individual names, shares of Citibank and Bank of America are each down by about 5.0%, while JPMorgan is 4.1% lower. Over in Europe, the DAX and FTSE each closed lower by nearly 0.5%, with the CAC squeezing out a slight gain to close up 2 points to 2974.  Looking ahead, shares in Europe could be under pressure at the open tomorrow, as equity traders react to the late afternoon selloff in the US.