'Grexit is just a matter of timing' - Simon Smith, FxPro

 

   Simon
   Smith

PROFILE:
• Current Job: Chief Economist for FxPro
• Career: Holds an MSc. in Economics from the University of London and a BSc. from Brunel University. He has held economic and strategy positions with Standard & Poor’s.

View profile at FXStreet

Simon Smith has over seventeen years experience of macro forecasting and investment strategy research. Prior to joining FxPro in May 2010, Simon was a consultant with Thomson Reuters, having spent four years as Chief Economist at Weavering Capital. 

Simon has held economic and strategy positions with Standard & Poor’s, together with consultancy firms 4Cast and MMS International. He holds an MSc. in Economics from the University of London and a BSc. from Brunel University.

US weak economic data hit USD rally, but it's too soon to call for the end of the bullish dollar; What is your line on the sand in the EUR/USD for a trend change?

Well, it’s the 1.1036/52 area that’s going to be key. Above there, then the game will be changed. I’ve said that the bullish dollar view is going to be a lot more muddled for the remainder of the year. The July 2014 to Feb 2015 period was pretty much unprecedented for its relentlessness. That was ice-skating. The rest of the year will be more like walking through treacle, because the ECB is not going to ease more and there’s a good chance that the Fed will remain on hold? There is only so far EURUSD can travel with underlying monetary policies not changing.

Greece is the talk again this week, with the key Eurogroup meeting on Friday trying to get an agreement before the 12th May big payment deadline Greece will face. How likely do you think is a Grexit at this point? And how would it impact the Euro?

I think putting numbers on a Grexit is a bit of a mug’s game. Nothing lasts forever in terms of monetary systems and this remains true for Greece’s membership of the euro. But it’s simply a matter of timing as to when it comes on an end. The (effective) marriage between Germany probity and Greece indulgence is over; it’s just a question of negotiating the terms and timing as far as I can see. We’re getting to a point where contagion risks are increasing in markets and the reputation of the institutions involved is also under greater threat.

The GBP/USD rallied to test 1.5060 on Friday but the pair closed the week below 1.5000; what is your forecast for the British Pound against the US Dollar in the coming days?

We have an election coming up in which the markets at least feel there are few bullish scenarios that can emerge from it. That said, much of it is already in the price. Sterling has been underperforming on the majors over the past 5-6 weeks. If anything, the correlation to short-term (2Y) interest rate spreads suggests sterling should be higher and more in 1.51-1.53 area, so this is where the short-term opportunity lies should the dollar continue to languish.

The BoC stood pat last week, joining other central banks from Singapore, Australia and India that also kept their monetary policies stable in their meetings this month. Do you think the rate-cutting Currency War has ended?

Personally, I always find the “currency war” phrase over-used. I’m not sure that the currency has been the primary factors in many of the recent easing that we’ve seen, but in some it has been, such as the RBA earlier in the year. I think we are in a breather. Some may ease again, such as the RBA, perhaps the RBNZ, but I think the major thrust has passed, hence the more pragmatic dollar view going forward.

What's going on in the China's stock market? How this rollercoaster is affecting other stocks exchanges as well as the currency market?

The Chinese stock market has for a long time been a law unto itself. Even for developed markets, the relationship between the economy and the stock market is often weak at best, owing to a multitude of reasons. In China, it’s non-existent. Access is restricted and firms are to varying degrees state controlled. Currencies should really not take much notice at all; it’s just a casino.