Barclays suggest to their clients to sell EUR/JPY. They note “we remain bearish on EURJPY from a fundamental viewpoint given the elevated uncertainty around Greece’s solvency and increased risks of failed negotiations with the Eurogroup on 24 April”.
Credit Agricole report “some downside risks for EUR could linger as well. In particular, uncertainty about Greece should continue to haunt the single currency, with concerns about the country’s debt-sustainability likely to escalate as the bailout extension draws to an end in June.
Long-term risks should still be on the downside, however, and we expect EUR/USD to hit parity in Q3 with the USD-rally resuming as we get closer to the Fed’s first hike”.
Source: Credit Agricole
Credit Suisse report “we are now of the view that the market is increasingly willing to hold short EUR positions on crosses in G10 space. If EUR really does replace JPY as the funding currency of choice due to negative rates, this trend can have a lot further to run, to EUR’s overall detriment.
We are revising our EURUSD forecast set to 1.05 in 3m (1.09 prior) and 0.98 in 12m (1.02 prior)”.
Source: Credit Suisse
In a note to clients, Credit Agricole report that “in order to push EUR/USD considerably lower from current levels Fed rate expectations may need to rise further. As there seems to be scope for the Fed to consider higher rates as soon as mid-year, we anticipate further diverging monetary policy expectations to the detriment of the pair.
We remain short EUR/USD targeting a move towards 1.06″.
Source: Credit Agricole
Bullion Index report that Euro issues will continue to prop up the price of gold. They note the Greek Eurozone creditors that have been keeping Greece afloat since 2010 have extended the country’s bailout by four months however it is only the beginning from what we see as a number of key flash points facing the Eurozone which will in turn support the price of gold over the next 12 months.
The ‘extend and pretend’ charade Greece and the Eurozone have been playing can only go on for so long. Greeks have shown that they want to remain within the European Monetary Union (EMU) and want to stay with the euro currency, however they are strongly opposed to the anti-austerity measures in place which is going to come to a head at some point. What Greeks also haven’t taken too kindly to in the past two weeks is what they see is a lack of respect or understanding from key Eurozone creditors and personal. The veteran German Finance Minster Wolfgang Schauble patronizingly said after the extension agreement that ‘the Greeks certainly will have a difficult time explaining the deal to their voters’, while also noting of the Greek Syriza party that ‘being in government is a date with reality, and reality is often not as nice as a dream’. The hostility between Greece and its creditors, in particularly Germany, is palpable and it really is only just the beginning of what will be tense negotiations throughout this year.
Many economic experts are suggesting that Germany is managing Greece out of the EMU, having decided that as far back as 2012 when they reduced their banks exposure to Greek debt.
In getting an extension, Greece had to stick with the basic terms of their original bailout package, something the Greek prime minster Alexis Tsipras has said he would ditch altogether. This has put him at odds with his own election promises, already he has been forced to abandon or water down his commitments to the Greek people in order to win an extension. It will not be long before Tsipras feels the heat from both those inside the Syriza party and voters. Tsipras has begun the near impossible task of selling the extension to voters, noting in a speech that “we won the battle but not the war as the difficulties, the real difficulties, not only those related to the discussions and the relationships with our partners, are ahead of us’. We do not see how Tsipras is going to get any significant austerity measures required by creditors through the parliament, which may lead to a snap election causing more uncertainty and instability in Europe.
The extension agreement must be understood for what it is, just an extension. Greece still needs to play its high stakes poker game with the Eurozone and so far it really has just kicked the can down the road by extending the bailout. Greece will need more cash to save itself from default when the bailout extension expires in June. Greece also faces €6.7 billion of bond redemptions in July and August this year which will require more cash and more negotiations no doubt. This has not been a focus however it needs to be on the radar of investors.
At what point will we see the Greek creditors turn-off the credit lines to Greece? We do not see extension after extension being given to Greece as the Eurozone cannot continue on the same path it is currently on. They will not continue to provide billions of euros in loans to Greece given it really needs significant structural reforms to boost growth, not tighter German-led austerity measures which are not working in reducing the levels of debt.
It is not just Greece who will be keeping the Eurozone in the headlines, we are bound to hear more and more rumblings out of other Euro countries over the next 24 months with key elections in both Spain and France. Spain is holding elections later this year with the focus on the anti-austerity Podemos party which runs on a similar platform to the Syriza party in Greece. While the Podemos party in Spain is less than a year old it is increasing its prominence. Podemos leader Pablo Iglesias campaigned for the Syriza party in before the Greek elections last month saying “a wind of change is blowing in Europe”. In France the far-right anti-euro National Front party is gaining traction with mainstream voters, the party advocates France exiting the euro and going back to the franc. France has general elections in 2017. Populist parties from all sides of government are growing in voice across Europe and this is expected to continue.
The chances of a ‘Grexit’ are in our view still very high, if a ‘Grexit’ happens this would create damaging volatility and turmoil for global financial markets. We see significant instability and headwinds for the Eurozone over the next 12 to 24 months and expect this to provide a solid foundation for the price of gold. We are suggesting to clients to add to their gold holdings on price dips such as the one we are experiencing right now.
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SwissQuote report the “EUR/CHF’s spike above 1.05 at Swiss open fueled speculations that the SNB might be behind the move. The money markets show limited reaction, we see no particular stress on euroswiss interest rate futures. As EUR/CHF tops, real money names and business owners will increasingly be tempted to sell EUR verse CHF on futures and derivatives markets to set FX hedges vis-à-vis the risky EUR. Therefore we expect choppy upside at 1.05/1.10 area.
The impact of EUR/CHF debasing is heavily felt in Swiss everyday life. The grocery shops, supermarkets, furniture, clothing shops give sensibly high discounts in order to prevent clients from buying across borders. This being said, the labor market is now under important contraction pressures. In the canton of Geneva, the negotiations for 50% unemployment are already on the wire. We expect significant price adjustment in the real market over the months ahead, which in turn should cool-off buying pressure in franc”.
SwissQuote report “the tensions in Switzerland have been mounting over the past weeks due to unexpectedly balanced election polls on the Gold Referendum. However we believe that the rational will finally win over the Swiss gold debate. In our opinion, the markets have gone well beyond themselves. EUR/CHF edges the oversold conditions (RSI at 30%), the 1-month implied volatility advanced to 4.45%, highest levels over more than a year. The 1-month (25-delta) EUR/CHF risk reversals became quite negative as demand for put options increased overly. The rational calls for action. Given our biased view in favor of a “no” outcome, we believe that there is opportunity in the topside OTM calls. On the spot markets, EUR/CHF is seen at optimal entry levels for long EUR/CHF positions”.
SwissQuote report “the International Monetary Market (IMM) non-commercial positioning is used to visualise the flow of funds from one currency to another. It is usually viewed as a contrarian indicator when it reaches an extreme in positioning.
The IMM data covers investors’ positions for the week ending 14 October 2014. The most recent data confirm the investors preference to the US dollar, as all major currencies remain net short against the greenback. The net short EUR positioning has remained stable in recent weeks, suggesting that a new catalyst is needed to create a new wave of Euro selling. However, with the ECB implementing its recent easing measures (purchases of asset-backed securities and covered bonds) and given the increased Germany’s resistances to a broad-based QE, the odds to see an imminent QE seems fairly low.
Net short positions in commodity currencies have significantly increased, pushing aggregate USD positions near their historical highs. Even if we continue to favour long-term USD strength, the current highly polarized market suggests risk of increased volatility. Long USD positions are currently best taken on price weakness”.