Good morning

Ask any trader about what they believe moves markets and the first thing they will tell you is any kind of BAD news will be viewed as negative with respect to the currency in that country. So after news broke over the weekend that the IMF had walked out of a meeting with Greece citing a breakdown in negotiations one would have immediately thought when the markets opened on Monday the EUR would get crushed (don’t forget Chancellor Merkel commenting on Friday that the EUR was too strong). Guess what – that DID NOT HAPPEN. The EUR has rallied climbing through the 1.13 barrier and trading strongly in the face of a Greece defaulting and exiting the EU. I have been asked if I can try explain this phenomenon. The simple answer is I cannot. The only 3 reasonable options for this can be (1) more buyers than sellers, (2) the FOMC meeting tomorrow coupled with disappointing US data yesterday (Industrial Production), and (3) Collusion and “manipulation” by the authorities to keep the EUR perked above 1.10 knowing that if they were not supporting the EUR at this time it would have collapsed towards PARITY. Make no mistake that is still going to happen only the CB’s want to make sure they are ready for that eventuality. Intervention by the CB is common in the FX markets though never told (don’t confuse this type of intervention to the one where a CB intervenes to protect their currency from speculators).

Greece is all over the news. Bloomberg and the Financial Times paper are now discussing the possibility of a Greek default without exit. As we have discussed previously if no agreement is reached by the end of June capital controls would be required as the ECB would have to increase the “haircut” on Greek bonds and assets and more importantly freeze the ELA (Emergency lending) to the Greek CB who in turn provide liquidity to the local banks. The fallout from this is going to be HUGE with a capital H. Default on Greek bonds held by the ECB (€3.4bn 20 July) would lead to cross defaults not to mention the bonds held by foreign banks, hedge funds and other investors. Like in Argentina they would lose the lot. There is a great deal riding on this and unless a deal is reached the global financial system could be heading into unchartered waters and potential financial chaos. Banking stocks were roasted on the spit yesterday as a result. One can argue that the EUR trading where it is could mean there is actually some kind of deal though not announced or agreed to in totality. There are so many if’s and but’s. What we do know is the Greek PM Tsipras is playing a very dangerous game that could see his country go down the tubes. The Greek people were quick to vote them into power in January and it is those people that are now suffering. Should the default happen the Greek CB will be left penniless and people will simply not get paid. This could lead to an early election and bring back the opposition party who have openly said they will have negotiated differently had they been in power. This scenario will see Greek banks freeze bank withdrawals and transfers abroad and bring the Greek economy to a halt. Syriza have played hard ball and are now counting the cost. The bottom line is the Greek government need to reform labour laws, pensions and taxes (or should I say tax avoidance).  Unfortunately the latest news from Tsipras was Syriza would not give in to demands for pension cuts. Perhaps someone should tell Mr Tsipras those same pensions will be worth nothing if there is no money in the coffers.

And as I write this the EUR continues to climb as if everything is calm and an agreement has been reached – PERHAPS THIS IS EXACTLY WHAT HAS HAPPENED and we just have not heard yet.

Not to be left on the sidelines, the GBP has rallied over 1.56 handle in line with the EUR rally (EURGBP slightly better bid). I can just imagine GBP FX spot traders sitting at their desks right now asking themselves what and who is driving the EUR and GBP to these elevated levels. I am certain the truth will come out soon enough and we will find out just how close we came to WW3 (financially speaking that is).

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Fears of Greek default are in the air (isn’t it always these days?), but I find myself struggling to mobilise the appropriate level of concern. This whole thing has been exhausting, and to outside observers it would be boring if the consequences weren’t potentially so dire. On the other hand, the fact that the troika seems so uncompromising suggests that the risk of contagion has been all but eliminated. Certainly the probability of capital controls in Greece is as high as it’s ever been. It seems that the weekend talks weren’t fruitful, with a rumoured €2bn per year gap separating Greek officials and representatives of the troika. The Greek government looks to have created a red line against further pension cuts and hikes in V.A.T. While there is no argument in terms of the financial debate, it’s tough for me, sitting thousands of miles away, to comment on the morality of the situation. I will, however, observe that if more wealthy Greeks paid their due taxes, both current and historic this might be less of a problem!

But what has this done to EUR/USD? As you can see from the chart below… not much. It almost feels as if the currency pair has detached itself entirely from these critical negotiations. Greece doesn’t matter anymore! Even Merkel’s comments at the end of last week only had a limited impact (recall her warning that a strong euro makes economic reforms more difficult). Clearly EUR/USD remains in a corrective complex of some sort. I have had occasion to question if the move lower – in mid-May –  where I suggested the dollar bull trend had re-started wasn’t in fact just a component of the complex which began after the mid-March lows. For now my working hypothesis, is that the dollar bull trend has indeed recommenced, and as long as we don’t go above 1.1467, I will happily maintain that stance.

On Friday, we saw strong Michigan sentiment data which also failed to provide much of a boost to the US dollar, I can only speculate that the slightly softer 5yr inflation expectations (a part of the same Michigan survey) was responsible for the sluggish price action. Later on today we’ll see the Empire State manufacturing data, I’m intrigued to see if: (1) the data is strong; (2) the impact of strong data on the US dollar. It might be the case that the price action will be subdued because we are all waiting for the outcome of the FOMC meeting on Wednesday. The Federal Reserve meeting has to be the single most important macro event this week, short of a surprise announcement of Greek capital controls anyway!

For now the US dollar appears relatively subdued, and range-bound against major rivals, although there are signs of strength against more risky currencies. I suspect the impact of the bond market sell-off is the primary culprit there. We continue to maintain that at this point, any significant currency moves should be in favour of the US dollar

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Good day

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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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Greece and the troika appear to be moving further away from compromise in the last few days, even as the government’s need to access the €7.2bn bailout funds increases. Capital flight has been on the increase in Greece since the elections, and funds are being drained from the banking system by a variety of means, new car purchases are one imaginative form of safe haven, as are inflows into mutual funds operated out of safer countries within the Eurozone. Unfortunately this is a vicious circle, because the more liquidity is drained from the Greek banking system the greater the likelihood that Cyprus style capital controls will have to be imposed sooner or later. But.. you wouldn’t know it by watching the performance of EUR/USD over the last week, the currency pair is almost 2% stronger than it was at the end of last week (euro appreciation relative to the dollar). But as I’ve noted in recent days, this seems more about the US dollar than anything. As things stand, we continue to maintain our positive stance on the greenback, and only moves above 1.1470 in EUR/USD and 1.5820 in GBP/USD would change that. In any case, the ability of the market to shrug off concerns about Greece is a sign of how fully discounted information on the crisis has become, and presumably only really new news will change that.

Some potentially huge data out later on today… retail sales data will published for the United States later on in the European afternoon. When you consider that the FOMC is next week on 17^th June, anything that puts the condition of the North American economy in a positive light could influence the decision making process. Of course no one knows just how close policymakers are to pulling the trigger on policy normalisation but you would have to think that tightening labour markets, wage growth, any signs of a more confident consumer could easily tip the balance. Of course our primary concerns are always related to currencies, and a strong retail sales number is likely to halt the greenbacks mini slide, in fact it could throw it into sharp reverse. As I observed earlier, the motive force in the EUR/USD pair definitely seems to be the USD side right now.

Across the world, South Korea has cut interest rates in an attempt to bolster confidence, given the outbreak of MERS (Middle East Respiratory Syndrome), a close cousin of SARS. Given the impact Ebola had on the global economy this situation warrants careful monitoring, and bear in mind that the South Korean economy is a significant contributor to global growth and is a key part of the North Asian economic hub. The RBNZ also cut interest rates in New Zealand for the first time in four years, given low inflation and an overvalued currency.

The major bond market selloff in the last few weeks has put several emerging markets currencies under pressure, you only have to look at where the South African rand has traded to in recent days (you have to go back over 10 years to find a time it has traded as weakly as this). This could be a mere shadow of what might come when the Federal Reserve moves. If you have significant exposure in less liquid currencies this should be at the forefront of your considerations in the months ahead. We will of course keep you informed about Federal Reserve policy maker speeches and actions.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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The US dollar has been bashed around a bit in the last few days, moving from intra-day to low to intra-day high, but stepping back a little bit, the mini-trend has been dollar weakness. We, at ParityFX, remain dollar bulls, but we acknowledge that the path to dollar strength could be clearer. This morning the dollar has moved lower with EUR/USD and GBP/USD (cable) higher, and USD/JPY sharply lower. With respect to cable, we have just observed a move through a key level 1.5446 which tells us that we have not been (as assumed) in a minor corrective pattern (4^th wave) anticipating another move lower, but it is entirely possible that the lows achieved on Friday saw the completion of a first wave down in a new cable downtrend. This is my preferred understanding for the moment, and as long as 1.5816 is not breached to the topside I will be monitoring the pair with this in mind. On this basis, the obvious question is where do we go from here? I view the current dollar weakening (cable bounce) as a correction with possible targets at 1.5490, or possibly 1.5670, and furthermore, it would seem unlikely that a new impulsive wave in the dollar bulltrend commences until at least the backend of next week. I expect between now and then to see further up and down periods, directionless if you will, as is typical of complex corrective scenarios. Time will tell.

I’m no strategist, as I’m sure readers have surmised, but it’s always good to support technical views with fundamental data, or at least it’s nice to have a narrative. In terms of new macro data, we’ve seen very strong machinery orders in Japan; very disappointing industrial production in France; surprisingly strong Swedish industrial production; stalling industrial production in Greece; and a stunning employment data point in the United States that confirms the strength and optimism in the US labour market, more opportunities and listings abound for workers in the US economy than at any time since December 2000. This is fantastic news, and it’s the sort of thing that will end up encouraged the disenchanted back into the labour market.

So with all that news, on balance good news I would say.. why the dollar weakness? Well… a better question to ask.. given the looming Greek crisis, is why the strong euro? I don’t have answers, but the questions we’re forced to ask are themselves revealing. I can tell you that the BoJ governor recently cast doubt on the likelihood of further yen weakness, so it’s no great surprise that this has been the best performing of the major currencies. US legislators have called for the IMF to hold off including renmibi in their SDR basket in retaliation for recent alleged Chinese cyber attacks. The inclusion of the Chinese currency will be a further step towards the renmibi being legitimately considered a global reserve currency. Quite what this has to do with the US legislature escapes me, but there you go!

Markets have seen some extraordinary things this year, the revaluation of the Swiss Franc, the collapse in Bund yields to 5bps, and the fact that less than 2 months later they have just touched 100bps, I wouldn’t class the price action in the last few weeks as particularly noteworthy. For my money, the greenback is still ascendant.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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The USD roller coaster ride continues. Despite all the bad press over the past weekend that Greece had missed/ignored the €300 repayment due to the IMF on Friday, the EUR (USD) appears to have found a second wind. The move higher in the EUR yesterday was the result of strong German data with exports up 1.90%, imports down 1.3% and Industrial Production up 0.90%. While these numbers are indeed impressive, the US employment numbers on Friday were equally impressive growing at +280k. As we have noted previously until we have a more definitive idea of when US rates are going to rise (Sept is the call), the currency is likely to remain range bound 1.09/1.1350 as the market attempts to build medium term positions. If one looks at the FX Options market for direction you can see that Option traders are still VERY concerned and have thus maintained EURUSD vol at the recent highs. 1m vol stands at 13.60/13.75, 3m 11.70/12.00 and 1y 10.45/10.65 – in contrast GBPUSD 1m stands at 8.65/9.15, 3m at 8.25/8.65 and 1y at 8.30/8.65. I think under the circumstances I should add USDJPY given that the JPY has fallen to a 12 year low, with 1m vol at 8.80/9.00, 3m at 8.60/9.00 and 1y at 9.65/9.80. What I am trying to illustrate is the GBP is sitting above the crucial psychological 1.50 barrier as is the EURUSD 1.100 while the JPY is trading above 124 and yet the JPY and GBP vol remain “depressed”. On the flip side EURUSD vol is trading at a 5% premium over the others which just goes to show how the market is preparing to position themselves for (1) GREXIT and (2) the USD rally post rate hikes. No doubt the inability to strike an agreement over Greece has been the main catalyst driving EURUSD vol higher and until such time we have a definitive result you can expect vols to remain bid.

The Greece saga will simply not go away. In a way it is helping the markets remain volatile which is what all FX traders like. Having said that the reports over the weekend continue to keep traders on the defensive as some members of Syriza are now openly calling for a default and GREXIT. The majority (80%) of Greeks want to stay in the EU so the GREXIT members are in the minority. It really does defy logic given the complexities and financial Armageddon that ensues a GREXIT. Meanwhile, the economic situation continues to deteriorate in Greece, adding pressure on the general government budget. According to the numbers released by the Ministry of Finance last Friday, the state revenue shortfall grew €1bn in May to reach a total of €2bn since the beginning of the year, and forced the government to increase arrears of payment. Without fresh money from its creditors shortly, Greece may be unable to pay €1.6bn to the IMF at the end of June. With the increasing pressure to GREXIT the Greek banks have continued to see a run on their cash adding more pressure to an already unstable situation. The banks are increasingly relying on Emergency Liquidity Assistance from the Bank of Greece. However if the IMF stop the funding of the ELA this could see the Bank of Greece imposing restrictions on the capital that people can withdraw. With circa €1.6bn due at the end of June and €3.4bn due on the 20 July the Greeks are (secretly) hoping for a deal so that the remaining IMF’s €6.5bn in funding can be released. The strong rhetoric from the PM over the weekend does not help matters. Perhaps the Greek people should realise before it is too late that their choice of Syriza was in hindsight a bad vote.

Call me a conspiracy theorist, but on the face of it after such strong words from Tsipras over the weekend you would have expected the EUR to get mauled at the open. Yet the opposite happened and the German data numbers were “blamed” for the rise in the EUR. My point is I wonder HAS A DEAL BEEN STRUCK!!! Tsipras openly attacks Troika misses a repayment and the EUR APPRECIATES. I smell something brewing in the kitchen and I wonder if that is the smell of a successful resolution (for now) in this long running Greek saga.
As for the GBP – My gut still tells we are heading back down to 1.50 over the coming weeks. Let’s see how right my gut turns out to be.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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US employment data, in the form of the non-farm payrolls report, came out on Friday and it was generally impressive. But acting as devil’s advocate I would like to direct you to the chart below…

This chart illustrates one reason why some Federal Reserve policy makers continue to resist calls for higher US rates sooner rather than later. Now, granted this is an old chart, you can see that the participation rate (the percentage of the US working age population in gainful employment) is somewhere below 63% in early 2014. Well… it’s now the middle of 2015 and the participation rate published on Friday was 62.9%. So… no change in labor force participation over the last year then! For me, the fact that this chart has been in decline since well before the great financial crisis in 2008 speaks of more than cyclical concerns, I can’t pretend to be an expert on demographics, but there is a rational explanation for this, and there are certainly rational justifications for why interest rates in the United States are too low now that counter this statistic anyway.

In any case.. back to last Friday. 280,000 new entrants to non-farm payrolls, comfortably in excess of the 225,000 forecast, and perhaps more importantly average hourly earnings beat expectations as well. As I’ve mentioned this before, wage growth is likely to be the trigger for policy normalisation, and it’s starting to grow. Surprisingly however, the unemployment rate rose. This might be counterintuitive, but that is likely to be a positive, implying that more people are starting to look for work. The US dollar’s reaction was immediate and unequivocally positive, rallying close to 100pips within minutes against the major currencies. The big moves in the last few days have been in favour of the dollar, and we continue to look for the greenback to strengthen into the end of the year. EUR/USD parity is still a possibility, as is 1.40 in GBP/USD, but the path towards that will be fraught with bumps and potholes. We consider it our job, to keep our eyes out on your behalf, to look through the fog and warn you of what’s coming, we aim to do that.

On the other side of the world, there are encouraging signs that Asia is doing rather better than thought. Japanese Q1 GDP data has now been revised up to 3.9% annualised versus the 2.4% initially calculated. Business investment has been much stronger than expected, with activity recovering it’s groove after the hit from the sales tax increase. Additionally data out of Singapore and South Korea has been positive relative to expectations. No one is saying that this is where the next great growth drive is coming from, but this is a sight better than fears that Asia could even be a bit of a drag. In fact according to some recent ‘nowcast’ factor models from Fulcrum, China and Japan are both recording stronger growth than seen in some time, and even the Eurozone (as we’ve been pointing out) has been looking spritely, particularly the serial laggards of Italy and France. The world is not the place of doom and gloom it has often threatened to be. Which is why I find the intervention of the IMF last week a trifle puzzling (remember that they cautioned the United States against hiking too soon). But who can understand why some of these supra-national bodies do and say what they do sometimes. Perhaps it’s more about staying relevant.

What is clear, is that continuing gradual improvements in the United States economy will increase the pressure on policy makers to hike interest rates. As in all things market related, it’s the anticipation that matters, and the longer this goes on, the greater the attraction to the US dollar. We continue to strongly believe to be the case that over time the US dollar will strengthen against its major partners..

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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First Friday of the month, we all know what happens, US employment data, specifically non-farm payrolls get published. This month, payrolls are forecast to expand 225,000, with a slight increase in average hourly earnings expected as well. The US unemployment rate currently hovers around 5.4%, and economists don’t expect a change in this number. We are now getting close to levels that in the past would have been considered full employment, although some senior Federal Reserve officials have recently argued that the unemployment rate indicative of full employment is probably lower. I have a feeling that argument has been pushed forward by those eager to keep interest rates where they are. That point of view received some support from the IMF recently, with claims that the US central bank’s credibility is at stake if unjustifiable rate rises are implemented before next year – strong stuff! The IMF argues that the level of uncertainty surrounding the US economy and the consequences for the rest of the world particularly in emerging economies could be dire if the process of normalisation begins too soon. I’m not sure what waiting until next year does for emerging economies, an interest rate hike in the United States will still have adverse consequences for the weak and unprepared. Are the IMF saying that these emerging economies are going to get their act together if their stay of execution is delayed until next year? I rather doubt it. Needless to say, the implications for the US dollar are obvious, strong evidence of robust employment conditions, and rising wage growth later on today will be a strong positive for the greenback.

Keeping the IMF in focus, Greece has notified that venerable institution, telling them that they will not make today’s scheduled €300m loan repayment. There has been strong opposition from Syriza party members to the bailout compromise agreed with creditors. As a consequence, the Greek government plans to bundle all the June payments together and make the repayment at the end of the month. We’re talking about a sum of about €1.5bn. Let’s be clear, Prime Minister Tsipras has already indicated that his government intends to make the payment, the opposition is from within his party. All the positive sounds about some sort of agreement with creditors have facilitated quite a nice little bounce in EUR/USD. From a technical perspective it’s worth noting that the highs of May, in my opinion a hugely significant level – 1.1467 – were not violated. This relegates the recent bullish EUR/USD price action to a mere correction within a bearish trend, and there is every chance that the party is over now. The trend still points towards dollar strength, and consequentially euro weakness. Looking at cable (GBP/USD) for corroboration, we see that the 1.5446 post-election rally reaction lows were not exceeded in the US dollars recent weak bout. From an Elliott Wave Theory perspective that is an important level to watch with the expectation that a new June low, or at least a re-test of the lows is only days away.

We anticipate that the price action going into the big data event later on today will be fairly benign, and most likely directionless, as the market holds its collective breath. As we’ve suggested strong data is likely to be dollar supportive. Perhaps the more interesting question is what the impact of soft data would be on the US dollar, it would certainly give us a better understanding of how much dollars are owned in the market. Either way this promises to be an interesting end to the week.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Good morning

The story will simply not go away. Only yesterday I wrote that Greek PM Tsipras said they were close to an agreement sending the EUR through the 1.12 barrier. Yawn, cough cough and here we go again, this morning we hear another round of top level talks between Greece and her creditors FAILED to resolve the differences as the PM rejected the proposals that would have released the bailout funds necessary to avoid a default. I don’t mean to disparage the Greeks as I have many Greek friends, but for the love of mercy when will they wake up and smell the roses. How long do they honestly think they can go on rejecting the proposals put in front of them in the hope of agreeing to terms which they can live with and which satisfy the anti-austerity movement in Greece. In reality the market should be as fed up with the rest of us and should be hammering the EUR into a black hole. Ok the recent EU CPI saw the EU re-enter “inflation” and yes that’s a good thing, but this story with Greece is bigger, MUCH MUCH bigger. In fact if Greece does default and potentially exit the EU the repercussions will be so far and wide that the collapse of Lehman, Bear and AIG will seem like kids play. That is what the IMF/ECB/World Bank and Troika in general are concerned about. The financial systems globally are so intertwined and weaved together that a default by such a “strong” EU member will be a catastrophe for the financial markets  which could see stocks collapse and the USD rise through PARITY not to mention the bank bankruptcies that will follow. The Cuban missile crisis was the closest event which nearly brought about the 3rd WW. Be rest assured, a Greek default and GREXIT will be a financial crisis that blows the 2008 crisis out the water.

The Greek PM told reporters this morning “The realistic proposals on the table are the proposals of the Greek government. We can’t make the same mistakes, the mistakes of the past,” he said. The commission said in a statement that “intense work” will continue and “progress was made in understanding each other’s positions on the basis of various proposals.” Months of antagonism and missed deadlines have given way to a greater urgency to decide the fate of Greece. Without access to capital markets, the country has to meet four payments totaling more than €1.5 billion to the IMF in June, while its euro-area-backed bailout also expires this month. Extensions are likely to be granted in the event an agreement is not reached.  Tsipras added the demands by the euro area and the IMF for cuts in the income of poor pensioners and increases in VAT on power are unacceptable. “Ideas like cutting benefits for low-income pensioners, or raising the VAT rate for electricity by 10 percentage points, can’t be a basis for discussion,” he said. With a payment to the IMF due tomorrow, the markets will be holding their breath to see what happens. I know this goes against what I have written previously but there comes a point when enough is enough at which point the ECB/IMF should simply let Greece fall on her sword. After all we saw what happened to Caesar!!

Today sees the interest rate announcement by the BOE as well as the QE total (£375bn). No changes are expected on either. The GBP has been roasted vs the the EUR over the past 36 hours trading at 1.3630 (0.7335) as I write this. This was a EUR move rather than GBP weakness. The GBP remained resilient vs the USD trading above 1.53 (1.5320) as I write this. Don’t forget we traded as low as 1.5169 only 72 hours ago. Overall my view is the GBP (like other major currencies) are simply waiting in the wings before the USD starts its next journey to PARITY (vs the EUR), taking the GBP, CAD, AUD etc. with her. Already we have seen the JPY collapse to 124.25 in recent days after trading between 119-120 for weeks. People are constantly asking me when it will happen and I say you need to give it another month (I am ignoring Greece for this) when the EURO summer starts and liquidity thins out. Come September I think the financial world will be a different place. Warm your engines, the IDES OF SUMMER 2015 are coming!!!

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Good morning

What a surprise for the market. EU INFLATION (yes that is not a typo, i.e., DEflation) rose 0.30% surprising the market somewhat and giving the EUR a real boost. Moreover Greek PM Tsipras announced that negotiations were progressing nicely and an imminent agreement was forthcoming. The 2 in conjunction saw the EUR bounce from 1.0900 to just shy of 1.1200. There is the monthly ECB meeting today at 12.45 (Ldn) which is followed by a conference by Pres. Draghi. I am almost certain he will have something to say about yesterday’s CPI number and give support to QE in supporting the EU economies. There is not likely to be any major announcements regarding QE or monetary policy per se, rather questions will be posed regarding the Tsipras comments re Greece agreements. As we noted previously, an agreement of sorts will be greeted by the market favourably and that is already being priced into the FX rates we are currently seeing. However caution is called for because until we have an official press conference that an agreement has in fact been reached the market will still be weary of these comments.

After 5 days of GBP weakness, the GBP strengthened in line with the weaker USD. The GBP rose from 1.5169 to 1.5376 high, though the GBP weakened vs the EUR to 1.3730 (0.7183) following the better than expected EU CPI number. The FED communications continue to emphasize the STRONG possibility of a rate hike over the coming months and therefore there recent strength in the both the EUR and GBP (in my opinion) will be short lived once the heat rises in the FED kitchen. US data continues to impress (a couple of disappointing figures but this was an anomaly rather than something more serious) will continue to give the FED the necessary “ammo” to raise rates. Therefore over the coming months you will in all likelihood see a weakening of the GBP vs the USD but strengthening vs the EUR. Today sees UK services PMI (9.30am). Previous ticker was 59.50 with the market expecting 59.20 in line with the recent slowdown we have been seeing (GDP for example). Overall the UK economy continues to drive higher, QE is working and the Chancellor’s budget in July will reinforce what they set out 5 years ago.

Great news out of Australia which Greece should sit up and take note of. GDP rose 0.90% for Q1. No doubt the 2 rate cuts and QE have gone a long way to boost the Australian economy in the face of a slowdown in China (their biggest trading partner). This rise was the strongest print since Q1 2014 and Q2 2012 (previous high). While year on year remained at 2.3% the rise in Q1 is as a result of the monetary and fiscal changes initiated by the RBoA. So Mr Tsipras as you can see anything is possible if you put your mind and party behind it.

EM currencies remain on the back foot despite the recent fall in the USD. The ZAR in particular has had a rough ride trading up to an 11 week low of 12.34 vs the USD. The recent low vs the GBP closed in on 19.05 (12 May) but it is more a factor of what is going on locally that is driving the ZAR lower. I am a little confused WHY the SARB are not lowering rates to stimulate the economy like the Aussies did. The SARB have the ability and firepower to do it and in my opinion it is called for. While I think a rate cut is called for the SARB have other ideas as they commented that “any rate cuts domestically were unlikely despite our poor growth prospects”. The SARB also said that “moderate rate hikes were likely to achieve stability without hurting our chances of growth”. Obviously we are on different pages!!

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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