So a deal has been struck between Greece and its creditors yesterday or at least an agreement on the terms that Eurozone’s national parliaments will have to approve after the Greek government passes a number of key reforms over the next few days. It has been a strenuous effort over the weekend and on Monday morning it seemed that the two sides still had some way to go but soon after we released our morning report news from Brussels let us know that there’s a basis for understanding.
We are intentionally discussing this news with a reserved tone as the deal still has some way to go since the Greek leftish government now has to pass a number of key reforms and laws over the next couple of days through its parliament and that might not be as easy as it sounds. These reforms go against almost everything this government was elected on and more importantly they go against the party’s core political and social beliefs. So Greece is not out of the woods yet and surely enough traders know that hence the reaction of the Euro.
Yesterday morning after the news that a deal has been reached the Single currency rallied higher temporarily approaching the 1.1200 barrier against but as soon as traders got ahold of the specific terms of the agreement a bearish reversion took place. The Euro plunged to 1.100 where we find it this morning on the basis that a) it will be hard for the Greek government to pass these reforms and b) the whole process revealed the structural challenges and political division that the Eurozone as an entity has to face nowadays.
We expect this bearish sentiment to continue today as the release of the German ZEW Survey is probably going to add pressure to the Single European currency. The crisis and the way it unfolded has shed light on Eurozone’s problems and the division between the two blocks of countries that either supported or were against strong austerity measures for Greece and in general doesn’t bode well for the future of the union. Next step for the Euro will be the 1.0920 lows should the ZEW Survey add more pressure on the currency.
The Cable was also under pressure yesterday with the British currency dropping below the 1.5500 barrier before the end of the day. It seems that the currency was trading off the back of the news from Brussels but the release of the inflation levels today should provide a new spark for Pound traders and prop us some volatility in the Cable. A lower reading on the CPI levels should send the Cable towards the 1.5400 support area.
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