Euro Faces Weekend Gap Risk with Greek Referendum Sunday
- EURUSD holding near $1.1100 in thin trading conditions.
- EUR, CHF, GBP, and JPY carry significant gap risk over the weekend.
FX markets are likely to see higher volatility in the coming days. With US markets closed today in observance of Independence Day and the Greek referendum planned to take place on Sunday, there is a unique mix of thin trading conditions and potentially explosive event risk colliding. As such, traders may find Sunday's opening quotes vastly different from Friday's closing prices, particularly in EUR- and CHF-crosses, but also very likely in GBP- and JPY-crosses as well.
Stepping away from Greece, yesterday's June US labor market report did little technical damage to the USDOLLAR Index on the charts, but measures of interest rate expectations aren't moving favorably for the greenback. In fact, per the fed funds futures contract, the implied probability of the Fed's first rate hike coming in December 2015 dropped from 43.3% to 42.2% as a result of the disappointing labor and wages data.
As Greece has been impacting the European currencies as well as the safe haven currencies, the best way to play 'pure' US Dollar biases may be best expressed through AUDUSD or USDCAD (although, Chinese financial issues are starting to spillover and become more prominent).
It may be deemed best risk management practice for traders to reduce position size and leverage in EUR-crosses for the foreseeable future. While the potential outcome for Greece is unknown - the absolute magnitude of the fallout around a positive or negative outcome will be enough to have a significant impact on prices over the weekend.
See the above video for technical considerations in EURUSD, AUDUSD, USDCAD, and the USDOLLAR Index.
--- Written by Christopher Vecchio, Currency Strategist
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