No change then in the fate facing the EUR. The currency slid lower against the USD at the European open, falling to a low of 1.0564 as the ECB’s QE programme continued to weigh on the EUR.
The EUR remained under pressure after the ECB began purchasing securities on Monday as part of an asset-buying program amounting to €60 billion a month. Additionally concerns over the situation in Greece continue to support the weaker EUR, as the Euro-group of ministers continued talks in Brussels to discuss a reform package put forward by Greece as part of its bailout review. Germany’s FM Schaeuble warned earlier in the week that Greece must stop wasting time and start developing its reform package. Isn’t it strange that that is exactly what we at PARITYFX have been saying since the 28 February. Greece has 2 options, comply with the Euro-group and face expulsion and return to the stone age. Ok stone age might be going back a little too far, but I guess you know what I mean. If the EU/IMF pull the plug on the bailout package the Greek banks will simply run out of cash, the financial system will implode and the economy will simply stop. Will this mean a return to the Drachma? How long will it take to print the cash again and more importantly at what rate will they fix the EUR/GRD….this is a situation that does not bear thinking. So let’s try be positive. I do believe a solution and compromise will be found. I do believe that Troika and Syriza will reach an agreement whereby we can all move on with a sign of relief. However between then and now, you will see volatility, new lows and as we have been saying since the 01st January, EURUSD WILL GO THROUGH PARITY 1.00/1.00. Of that I am as sure as my name is David….
Yesterday meanwhile saw a strange anomaly in the USD’s fortunes. Retail sales fell 0.6% in February, the third consecutive monthly decline. Economists had forecast an increase of 0.3%. While I am sure you could argue that the severe weather conditions in the US over the past month must have had a significant effect on this number, it is nevertheless not what the FED want to see. Overall though, the numbers (NFP +295 last week) remain steady so no need to worry, yet. Later today, the U.S. was to release data on producer prices (PPI).
GBPUSD…finally playing catch up. PARITYFX has noted over the past months that the GBP, while being held up due to positive signs of economic recovery and potential rate hikes later in 2015, was on a steady downward spiral. FINALLY 1.50 broke yesterday and at the time of writing we are sub 1.49. Don’t get me wrong, this is not necessarily a GBP bashing, but rather a USD rally (GBP playing catchup to the weak EUR). EURGBP has bounced back from the low of 0.7014 (1.4257) and is now trading at 0.7130 (1.4025). This is not a EUR recovery but rather a GBP getting bashed giving the EUR some breathing space. Suffice to say by the time you have to buy your EUR for your holiday, your sangria just fell another 10%. If on the other hand you are going to the US, well all I can say is you should prepare for further losses (less USD for your GBP). It is for this reason we ALWAYS advise our clients the importance of hedging your FX flows to avoid unnecessary losses (Adidas, Proctor and Gamble, Coke, Puma are a few example of multinationals who did not hedge their FX and suffered losses as a result).
AUDUSD found a fire in her belly rising to a high of 0.7730 in defiance of strong USD showing yesterday. GBPAUD fell like a stone from 1.9850 to 1.9350 as a result of the 2 moves. The Aussie has since fallen back trading around 0.7688 and with the RBA starting a new easing cycle we think the AUD will fall back to below 0.76 in line with the USD strength
Keep in mind, the USD strength and potential rate hike in MAY/JUNE continues to weigh on EM currencies. ZAR, MXN, BRL, ILS all falling in recent weeks. A strong USD = weaker EM so expect further weakness as the USD rally continues.
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