Greek situation and QE expectations send EURUSD to 9-year lows

Fundamental View

Welcome back to Amplify Trading and the first strategy report of 2015. Over the break we saw several large-scale developments which have affected markets since. We have firstly the political risk surrounding Greece and their general election on the 25th of January. This area has caused mild negative sentiment in the first few trading days of the year; the S&P has sold off 50 points from its alltime high set before the Christmas break on the back of global equities moving lower. The Nikkei has moved lower from the 18,000 handle towards the end of last year, reflecting the global impact of the Greek risk. The Greek Athex itself moved lower by 30% on the year, one of the worst performing of the major global assets. In addition to this we have seen Angela Merkel state that “the Eurozone is far better placed to weather the storm of a Greek exit [from the monetary union].” These highlight preparations by the main Eurozone nations for the event of a Greek exit, a possibility which threw the Eurozone into turmoil previously. This has also sparked further Euro weakness against the majority of currencies; we have seen the EURUSD make 9-year lows on the cash market, trading below 1.1800. This is not, however, fully due to the Greek political situation. We have had major commentary from Mario Draghi with QE expectations being brought forward, stating “Eurozone deflation risk is higher than it was 6 months ago.” Analysts have begun to expect the QE programme will be announced at the meeting on the 22nd , just 3 days before the Greek election. These comments spurred the EURUSD lower as traders have begun to price in QE. However many analysts still believe that the programme has not been priced into the price of the pair and that there is still more downside to come. Crude oil has continued its march lower, testing the $51.50 handle in overnight trade. Fundamentals on this product have not changed and output is continuing at its aggressive pace. or the week ahead we have several key pieces of data, most notably Eurozone CPI expected on Wednesday with a reading of -0.1%. This has been attributed to the fall in Crude oil and energy prices but the truest reading will be found in Core inflation. We also have Non-farm payrolls due on Friday with the usual Initial Jobless claims on Thursday. Also expected this week are the minutes from the FOMC meeting which took place before the break.

Today’s View

We had several pieces of data this morning in the form of UK Construction PMI, German regional CPIs. This afternoon’s session only contains the German summation PMI, expected at 1pm with a reading of 0.40%. This has, however, largely been priced in due to the components release this morning.