The agreement reached for the Greek debt swap does not seem enough to fully remove the downside risks weighing on the euro. The FOMC meeting, while interlocutory, should not penalise the dollar. The BoJ meeting should contribute to the yen’s downtrend. For sterling to weaken, labour market data must prove to be unequivocally negative……
For professional investors and advisers only
EUR – The euro proved rather volatile in the week, due to (1) the outcome of the ECB meeting, that is the wait-and-see stance taken by the central bank, and (2) the reaching of an agreement on the Greek debt swap. After dropping from EUR/USD 1.32 to 1.3096 in the first part of the week, on Thursday the euro recovered more than it had lost, “betting” on a good agreement, rising back to just shy of 1.3300. In the wake of the announcement, however, the exchange rate fell back to 1.31. At this point the relevant range in technical terms is the 1.3230-1.3165 corridor, which opens the downside front towards EUR/USD 1.26-1.25. The size of short euro trades on the market hinders a correction of the single currency. However, once the Greek crisis is over, in the strictest institutional rather than in the tangible sense, uncertainties tied to growth in the euro area and to the still unresolved problems of peripheral countries should continue to fuel downside pressures on the euro (downside targets below 1.31 are 1.3030 – 1.2827 – 1.2624).
GBP – The positive correlation between the GBP/USD and the EUR/USD made a comeback. On Monday, despite the very poor services PMI, the pound did not drop as the upward movement of the EUR/USD prevailed. However, on Friday even more disappointing data on industrial and manufacturing output were adequately registered by sterling, that regained some independence. This suggests that as the Greek crisis is gradually put on the back burner, the own issues of the UK economy will resume having a stronger impact on sterling. Next week, releases will include data on the labour market, which are expected to be negative. Barring favourable surprises, these should start to weaken the position of the pound, both against the dollar (down towards GBP/USD 1.56-1.55) and the euro (towards EUR/GBP 0.8500). As widely expected, on the other hand, the BoE meeting was a non-event, with both rates and the APF
JPY – Aside from some normal – and modest – volatility, the yen gave no sign of denying the downtrend which began last month. This week’s mostly lateral trend should represent a preparatory phase ahead of a continuation of the downswing, pointing towards an upside breach of USD/JPY 82.00. Next week, an impulse for the initial breach of USD/JPY 82.00 may come from the BoJ meeting.
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