Greek stock markets open to heavy selling

Forex News and Events

Busy week for GBP traders

Traders are currently watching the fall in Greek stock cautiously. Given how Greek stocks have traded as ADR in the US exchanges, much of this price drop has already been priced in. However, the size and speed of the fall has created a level of uncertainty. Although no spillover in European stocks has occurred so far as revised higher eurozone manufacturing PMI from its flash estimate of 52.2 to 52.4 in July has help sentiment. Outside of Greece, European equities are trading higher. It will be a busy week for GBP traders. The FX markets will have to manage the BoEs MPC rate decision, meeting minutes and inflation report all on Thursday (7:00est). The BoE will also conduct a press conference at 7:45 est. This will clearly generate volatility as participants scramble to decipher the incoming data. In regards to the inflation report, we anticipate that the outlook should be shifted slightly lower due to stronger GBP and lower oil prices, yet still hit 2% by end of forecast horizon. Its universally expected that the BoE MPC will keep rates unchanged at Thursday meeting. For the voting pattern of the rate decision we expect that two members vote for a rate hike but there is significant risk that another member joins the dissenters. This would be a bullish development for the GBP and accelerate our stronger GBP view. Finally, participants will be interested in how much the committee emphasize tightening in overall comments. We are constructive on the GBP on policy divergence especially against CHF, JPY and EUR. We expected that BoE to tread cautiously over sounding too hawkish especially in light of the failure of the Fed to upgrade its language. Yet, all other indications suggest that a rate hike could come as early as February. GBPUSD move above 1.5690 would trigger a bullish extension of strength to 1.5930 2015 highs. We remain buyers on corrections to 1.5460 support.

Switzerland: domestic sight deposits increased.

“The Switzerland’s central bank has intervened last week into the foreign exchange markets. The data that came in this morning at 9 showed domestic sigh deposits – corresponding to the cash that commercial banks hold with the central bank - that rose around CHF 800ml last week. This amount shows clearly an intervention by the SNB.

We think that even if a strong Franc would definitely weaken the Swiss growth by dampening exports, the Euro seems to have much deeper issues with Greece, growing unemployment and lack of growth. Last but not least the ECB is compelled to inject fresh money to stimulate the area. Furthermore, SNB Governor Jordan is convinced that the Swiss currency will weaken over time as the economy recovers and commercial banks look for alternatives to negative rates.

Contrary to Jordan, we think that the recovery is still not there, and in particular the Eurozone recovery is far from being sustainable. Major Eurozone countries have a debt-to-GDP which is absolutely massive and the EUR currency does not allow any its participants to debase as the Euro currency prevent those type of actions. Therefore, only strongest Eurozone economy will likely recover. All the others will simply increase their debt-to-GDP ratio and austerity policies will extend in those less fortunate countries.

Consequently, we think that the EURCHF will stay close to 1.0600 for the time being and we target 1.0500 within the next few days.”

Yann Quelenn - Market Analyst

For Free Trade Signals