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Hellenistic trepidations on the European financial markets

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The price action of the EURUSD currency pair took a positive twist in the last two days. Why? First of all, because of the macroeconomic data which was published as follows:

  • United States: ISM Manufacturing PMI down to 53.5 points, Personal Spending down to -0.3%, Construction Spending down to 0.4%, ISM Manufacturing Prices down to 35 points, Factory Orders down to -3.4%, Total Vehicle Sales down to 16.7 million;
  • Eurozone: Spanish Manufacturing PMI up to 54.7 points, Italian Manufacturing PMI up to 49.9 points, Final Manufacturing PMI in line with expectations at 51 points, Spanish Unemployment Change up to 78k, Italian Preliminary CPI down to -0.4% and the PPI for the whole Eurozone down to -1%;

Second of all, the European currency was favored because of the turnover in the Greek Prime Minister’s (Alexis Tsipras) approach to the debt. This week, the Finance Minister Yanis Varoufakis visited cities like London and Brussels and tried to find allies while spreading the news that Greece’s new government dropped calls for a write-off of its foreign debt and proposed creditors to swap the debt for growth-linked bonds. Even if the ECB’s officials believe in a more long and complicated scenario of the Greek negotiations, things could be solved in favor of both sides.

EURUSD temporarily left the 1.3000 support level, went for a while in the 1.1533 maximum zone, and now is stabilizing in the 1.1470 area. In the short term, negative corrections may be expected, but the pressure is increasing on the American dollar as market participants start to believe that an interest rate increase in 2015 is quite impossible given the current environment.

The oil market is rapidly recovering after the last year’s 60% loss. WTI is currently trading at 52.45 dollars while Brent increased to 58 dollars per barrel. These positive movements are for sure consolidating a further upward trend, but the market has still to deal with the low demand which is more difficult to be overcome. Once and for all the decrease in the oil price was caused by a decrease in demand while the supply was maintained at the same level or even higher. Now that the Amerian refineries seem to shut down one by one there are chances to see the supply modified, but when it comes to demanding the process is far more complex. In the short term the price of oil has still room to increase.

If New Zeeland chooses to maintain its interest rate at the current level, Australia chose to cut it to 2.25% leaving room for more dovish decisions. At the moment, both the AUD and NZD depreciate, following a trend desired by the central bank, and this descending path may continue further. We should pay attention to corrections as the price of oil is recovering, fact that is leading to higher costs for commodities and it creates premises of appreciation for AUD and NZD.

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