20150515 – DAILY FX MACRO

Good Morning

High Low High Low
EUR/USD 1.1421 1.1370 USD/ZAR 11.8513 11.7792
GBP/USD 1.5785 1.5747 GBP/ZAR 18.69 18.55
EUR/GBP 0.7238 0.7207 USD/RUB 50.57 49.47
USD/JPY 119.59 119.15 USD/NGN 199.3 199.0
GBP/CHF 1.4436 1.4379 S&P 500 2,126 2,119
USD/ILS 3.8327 3.8085 Oil (Brent) 66.86 66.28

It has been a turbulent week for the USD. Smacked against the GBP (mostly), EUR, AUD, NZD and even EM. Am i concerned by these recent developments, heck no!! As any seasoned FX trader will tell you, pull-backs happen and are healthy for the market to take profit and reinstate positions. What we are seeing is by no means out the ordinary and the “event risk” in Greece remains a daily talking point.  The other reason for yesterday’s USD sell off was the lower than expected US PPI numbers which added to the weak import prices report that was released on Wednesday. Some commentators are saying the US might even DELAY the first rate hike from September to either October or December. The USD sell off was surprising given the disappointing German & French GDP numbers and Pres. Draghi’s commitment to implement the asset purchase programme in full. As have seen in recent weeks, the ECB is committed to throwing as much money as possible to get the EU growing again (in tandem with the UK and US).

The Telegraph newspaper reported yesterday “Why Syriza are doing everything EU creditors demand”. I thought this was an excellently written article as I have always noted here that what we read in the papers and what is disclosed is NOT necessarily the same. In fact Sky news reported that Greece has done a U-turn on the proposed sale of the country’s biggest port, Piraeus to a Chinese firm. One could argue that a sale of this magnitude could be compared to Gordon Brown selling UK’s gold at $275. Unfortunately when you run out of cash and you have assets you simply do not have a choice other than to sell them. Hindsight is a wonderful thing and while Gordon’s actions were downright off the wall, Greece really has no other option. The previous Greek government had put the port on the market, but this was blocked when Syriza came to power. The apparent U-turn will indeed raise a few eyebrows back home, though the move is likely to sweeten the deal Greece is looking for with its EU and IMF lenders. The Greek FM then came out with some interesting comments saying Greece must escape the “strictness trap” of budget measures that might hurt the economy. He told an economic conference in Athens “I will be yet another finance minister who signs a mid-term fiscal adjustment programme that he knows will not work” adding “I wish that we had the drachma, make no mistake, this is not to say that I want the drachma. I wish we had not entered this monetary union … But once you’re in you don’t get out, without catastrophe.” I will simply add this, Mr Varoufakis, had Greece like the rest of the EU exercised financial prudence you would not have found yourself at the mercy of the ECB and IMF and more importantly bankrupt. Hindsight is a wonderful thing!!!

Mr Varoufakis, if you want the remaining €5.2bn of bailout cash best you sell your prize jewels, reform, institute austerity and stop telling your creditors they being too tough and need to lighten up. It is time to pull your socks up and tell your electorate austerity and reform is here to stay. Let them riot in the streets, come the summer it will be too hot to stay outside anyway so job done, all sorted.

A client asked me what I thought would happen to the EUR short/medium term, I will sign off with what my thoughts are:

“Short term I think we actually see a spike higher as the situation in Greece sorts itself out and the EUR gets a boost. I think there are 2 negotiations going on (1) what we read in the papers and (2) behind the scenes negotiating that is driving the process. In fact the Telegraph had a good article yesterday: http://www.telegraph.co.uk/finance/economics/11604518/Why-Syriza-are-doing-everything-EU-creditors-demand.html

Overall I think once the euphoria over Greece ends (negotiations successful) the FED will start raising rates as expected (Sept) and it is from then on we will see the USD start to move towards PARITY. We have noted in our commentary that PARITY EURUSD is coming, and should happen end Q3 or Q4 2015. The situation in the EU is by no means a quick fix as you have seen the €1.1trn QE. The US is well ahead of the curve and that’s why I think come the end of the year and into 2016 the USD will drive below PARITY”.


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