20150612 – DAILY FX MACRO

Good day

High Low High Low
EUR/USD 1.1268 1.1150 USD/ZAR 12.4680 12.3319
GBP/USD 1.5528 1.5466 GBP/ZAR 19.31 19.12
EUR/GBP 0.7258 0.7195 USD/RUB 55.48 54.02
USD/JPY 123.82 123.33 USD/ILS 3.8632 3.8070
GBP/CHF 1.4532 1.4464 S&P 500 2,112 2,102
GBP/AUD 2.0166 1.9994 Oil (Brent) 65.82 64.80

Back to Greece. After the euphoria that an imminent Greece deal was on the cards, it was reported that the IMF had abandoned their talks in Brussels with their Greek counterparts. Oi vey!!!

The Greek paper Ekathimerini reports though that Syriza MP’s were gearing up for a compromise. In any case we are all surprised that the EUR is not significantly lower on the back of the IMF news which came yesterday saying that there are still major differences with Greece in key areas and that the talks have stopped. There is no doubt that major differences still exist. For this to succeed Syriza are the ones who will have to concede the most. As hard as it sounds and looks, they are the ones that are looking for a bailout so it comes as a surprise that they think playing hard ball will eventually wear down the IMF. Of course the IMF and ECB want nothing more than to see an end to these ongoing and tiresome negotiations and to draw a line in the sand. But negotiating with Syriza is like drawing water from a stone. Surely at some point the IMF and ECB will step back and let Greece fall on the sword. The fallout will be brutal and unforgiving but what are the other options. Granted the last thing they want is to potentially lose all the money they have already invested. Then again it is only money and as there is more where that came from. So one has to ask is GREXIT and default the cleanest option. How this would affect the local banks will be interesting given the recent run on the banks. As long as the emergency funds are still forthcoming they will remain above water but like we saw with Northern Rock the queues will stretch all the way to Russia.

One must then wonder why the EUR is still trading at these levels. In fact Pres Merkel commented only a few hours ago that she thought the EUR was too high (which then dumped). Is she gearing us up for something bigger? Many many market commentators are looking for PARITY EURUSD by year end and we at PARITYFX have said exactly the same. With the US rate rise likely to come in September one must think that scenario is edging closer and closer. Even if a resolution is found in Greece, chances are it will be for a year and then negotiations start again. Greece has to reform VAT, Pensions, Retirement ages and Labour Laws. They have to come into line with the other EU members. It is that simple. One way for them to raise money is to sell their ports and islands. That should help the Ministry of Finance. Not to mention the bribery and corruption and tax dodges that is prevalent. So the problems no doubt are here to stay and likely to affect how fast Greece is able to come back from the abyss.

The GBP continues to keep FX traders questioning themselves. Trading above 1.55 while the EUR has fallen are questions that don’t have answers. More buyers than sellers. There now you have the reason. FX volatility shows no sign that the  FX market is concerned. Then again given that the risk reversals are in favour of GBP PUTS a rise in GBP simply allows the options market to “earn time decay”. I said a few days ago I thought after the US NFP numbers the USD was ripe to trade to 1.50 – boy did I get that wrong (SORRY). I hold up my hands and say even i don’t get this turnaround. Perhaps the market is gearing for a HUGE USD rally and thus the GBP will not suffer as badly had we been trading below 1.50 now. I still think it is coming, and with the summer holidays on our doorstep and thin liquidity perhaps it is going to happen then. Volatility always happens when there are thin markets so gear up for a busy summer.


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