Euro, British Pound Consolidate Overnight As Markets Await Clarity On Greece Bailout And Fed Direction

Talking Points
•    Japanese Yen: Regains Footing As Optimism Fades
•    Pound: Losses Slowed By Trend line Support
•    Euro: Support Limited On Greece Bailout As Markets Look Ahead
•    U.S. Dollar: Direction Dependent On Fed Signals

Euro, British Pound Consolidate Overnight As Markets Await Clarity On Greece Bailout And Fed Direction

The Euro consolidated overnight following last week’s volatility as markets await more details on a potential bailout for Greece. An empty economic calendar and the absent of a broader theme as started the week on a quiet note across the board. The direction of U.S. interest rates and the issues in Europe have created a great deal of uncertainty which has traders cautious. EUR/USD has slipped back below 1.3600 after a failed test of 1.3650

The lack of detail on a plan of action from European leaders has weighed on the single currency but rising optimism on the broader economy continues to fuel risk appetite. Risk trends still hold considerable influence over the EUR/USD and shouldn’t be discounted when determining short-term direction. However, market participants have already turned an eye toward the next pitfall for the region and the post bailout implications. Prevailing issues in Portugal and Spain will continue to bring into question the viability of the Economic Union and should remain a weighing factor. Support at 1.3480-61.8% Fibo of 1.2444-1.5149 is the next critical level, a break below exposes 1.3000

The British Pound should be at the mercy of the broader trends this week with very little fundamental data outside the second reading of 4fourth quarter GDP. A major revision in the growth number could spark volatility but with markets more concerned about the potential for more quantitative easing from the central bank the data shouldn’t initiate any new trends. The GBP/USD finds itself in a downward trending channel which could lead to more sterling losses. Support is being found at the lower bound of the channel after a failed test of 1.5344-50.0% Fibo of 1.3648-1.7047

The dollar has started to see the support generated by the Fed raising the discount rate begin to fade as it appears the central bank will keep its benchmark rate on hold. Regardless, the move may have ushered in a new paradigm as the greenback’s status as a finding currency may have come to an end. Therefore, we may see a positive correlation with risk appetite and positive fundamentals develop. Tomorrow’s consumer confidence report will give us some insight as sentient is expected to have declined which could spark a bout of risk aversion.


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To discuss this report contact David Song, Currency Analyst: jrivera@fxcm.com