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EUR/USD Test 1.3500 But Rebounds As Greece Flirts With Default

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Top Stories

  • Euro hits a 10 year low versus yen
  • Greek woes send risk tumbling
  • Nikkei off -2.31% Europe tumbles -4.29%
  • Oil back to $85/bbl
  • Gold at $1850/oz.

Overnight Eco

  • AUD Trade Balance (Australian dollar) (JUL) 1.83B vs. 1.91B
  • JPY Tertiary Industry Index (MoM) (JUL) -0.1% vs. 0.3%
  • JPY Domestic Corporate Goods Price Index (MoM) (AUG) 2.6% vs. 2.7%

Event Risk on Tap

    Price Action

    • USD/JPY breaks below 77.00 on Greek concerns
    • AUD/USD tumbles through 1.0300 as risk aversion accelerates
    • GBP/USD drifts to 1.5800 but decline contained
    • EUR/USD breaks 1.3500 before short covering pushes it to 1.3600 mid morning trade

    A very volatile opening night of trade for the week as concerns over the possibility of a Greek default sent EUR/USD tumbling in Asian session trade with the pair breaking the key 1.3500 level before short covering and bargain hunting in Europe pushed it back above the 1.3500 figure by mid morning session. The troubles in Greece continue to dog the pair as the country faces a hard deadline in October before it runs out of cash.

    Greek Finance Minister Evangelos Venizelos announced that over the weekend the Parliament passed a property tax intended to raise another 2 Billion euros to help plug the country's deficit target. However the news was too little too late for the market as the fate of Greece now hinges on whether the troika of EU IMF and ECB officials expected to return to the country this week, will approve the 2nd tranche of the bailout. German Finance Minister Wolfgang Schaeuble stated that, "As long as [the troika] cannot confirm that Greece has met its requirements, the next tranche for Greece cannot be paid. The situation in Greece is serious, given the interruption of the troika talks and there can be no illusions about that."

    Mr. Schaeuble's words suggest that Germany many be willing to cut Greece loose from the union as it views the Greek fiscal situation to be irreparable and indeed German Economy Minister Philipp Roesler wrote in an article for Die Welt daily on Saturday that, "To stabilize the euro, there can no longer be any taboos. That includes, if necessary, an orderly bankruptcy of Greece if the necessary instruments are available." As some analysts have suggested, Germany may be making a calculated decision that it will be cheaper to recapitalize its own banks that it would be to underwrite Greece for the next decade.

    We noted earlier that, "Should Greece be forced to default, the news would no doubt push EUR/USD lower in the near term as speculators sell the unit in knee jerk fashion, but the currency may actually rebound over the intermediate term horizon as EU monetary union gets rid of its weakest credit risk. In the meantime the uncertainty over the events on the ground will likely keep trade highly volatile for the rest of this week."

    With no event risk scheduled for North American trade, currency flows are likely to be dominated by equity price action and continuing rhetoric from the other side of the Atlantic. The EUR/USD remains under heavy pressure but the sharp selloff may lead an oversold bounce later today especially if risk flows prove supportive as the day progresses. 1.3500 remains the key pivot for the time being as the Greek crisis comes to a head.

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    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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