Mike Paterson's daily Forex brief.

You just can't keep a good ol' debt-laden currency down………

After an initial scare yesterday morning, re Greek default acceptance which saw a rapid sell-off in the Euro, the market has reacted favourably ( breathed a sigh of relief ) that the EU summit has produced something of relative substance.


EURUSD from falling to key support around 1.4135 has surged to 1.4439 dragging every Euro-cross pair with it. EURGBP fell to 0.8760 (GBPEUR up to 1.1420) on yesterday's dip but is now threatening to break key resistance lines around 0.8860 (GBPEUR support at 1.1290). EURCHF has broken up through heavy resistance to 1.1893 as the Swiss Franc loses its safe-haven appeal, dragging GBPCHF above 1.3400.

The EU communiqué was leaked hours before its official release and the Euro was already well on the march higher by yesterday afternoon. Essentially the package was thus:

  • · EFSF to be able to intervene in secondary bond market, bolster Greek collateral in case of technical default
  • · Net present value of Greek debt burden lowered by 20-25%
  • · Banks to swap bonds with short maturities for 30-year paper
  • · Total package from EU EUR 109 billion; Private sector EUR 50 billion over life of deal
  • · EFSF loan rates cut to 3.5%; maturities lengthened to at least 15 years for Greece, Portugal and Ireland

The lowering of the Greek debt burden was significant (even though it didn't go far enough) as were the  EFSF  ( European Financial Stability Facility ) measures so traders clamoured to get back into long EUR positions.

As I said yesterday regardless of the reality of the continuing/worsening level of debt – which effectively is just being pushed out further ahead by these measures – there is a Teflon-coat all over the Euro right now. Even the announcement later in the day that US debt ceiling talks were making real progress gave cause for traders to take "risk-on" positions.And guess what they bought…………Yep, the good ol' battle scarred-but-smelling-of roses Euro………..

That's not to say that the Pound isn't gaining a little ground ( sorry that's the rhyming couplet lyricist in me ! ) on the back of the big sigh of temporary relief cast over its largest trading partner ( the Eurozone of course not the USA ) and GBPUSD has taken a few prisoners in its piggy-back ride to 1.6350.. Elsewhere, the Pound is lower against the Aussie and Rand amongst others, as they are one jump ahead in the USD sell-off/risk-on cycle.

So we wait to see now whether this Euro surge can be sustained, not only in today's usual frantic Friday fayre but moving forward. Surely it's only a matter of time before Portugal, Ireland, Spain and Italy stick their heads back above the parapet… And then we'll see how this currently voracious thirst makes out… But remember that throwing good money after bad, especially by China, is really what this is all about now and will be ever thus………….

Not much in the way of data releases today but that doesn't mean we won't have some more fun and games before the week's out.

As for me, I'm taking my place in the Pav at Lords before I go entirely stir crazy…………..

Have a good week-end.

Today's Data:

Nothing significant expected.

Interbank Rates as of 08.37 GMT

Current Price

Overnight

High

Low

EUR/USD

1.4413

1.4439

1.4381

GBP/USD

1.6284

1.6341

1.6280

EUR/GBP

0.8849

0.8855

0.8818

GBP/EUR

1.1298

1.1341

1.1291

GBP/CHF

1.3411

1.3444

1.3289

GBP/AUD

1.5019

1.5083

1.5011

EUR/CHF

1.1878

1.1893

1.1742

GBP/HKD

12.6250

12.6690

12.6220

GBP/ZAR

10.9947

11.0882

10.9729

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades including working with UBS, Credit Suisse and as head of the FX team at the State Bank of Victoria in London. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors as well as those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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