13 July, AtoZForex .com Lagos – Rightly stated, Barclays EURUSD Trade Setup indicates that the outcome of the weekend’s political meetings regarding Greece’s latest proposal to creditors will be a major driver of the Euro for the week ahead.
Asymmetric EUR reaction
“The EUR’s reaction is likely to be asymmetric – a rejection of Greece’s proposals by the creditors will likely drive a sharper sell-off in the EUR than any rally under a more positive outcome,” Barclays argues.
To buttress its point of view, the bank has highlighted the following points:
“First, the market is poorly positioned for a negative outcome as price action on Friday was consistent with a high degree of optimism as European equities rallied, peripheral European bond spreads narrowed, EUR rallied and EUR implied volatility fell,” Barcalys clarifies.
“Second, we think the first line of defence against contagion is likely to be the ECB’s QE programme, with the ECB possibly frontloading some of the purchases to mitigate widening periphery spreads. A frontloading of EGB purchases will likely drive a sharp fall in the EUR,” Barclays adds.
EUR into the ECB
Barclays has also highlighted the potential impact of this week’s upcoming ECB conference on the Euro. President Draghi is likely to talk in-depth about the recent condition in Greece, touching on issues like the ECB’s stance on the ELA for Greek banks, and policy responses should financial market/economic conditions deteriorate and contagion intensifies.
“We do not rule out ECB responding with measures before the Thursday MPC meeting should market conditions deteriorate rapidly under a ‘no’ outcome for the third bailout negotiations on Sunday,” Barclays projects.
Barclays Bank EURUSD Trade Setup
“We see the market underpricing the risks of increased volatility and continue to recommend staying short EURUSD spot. In the event of agreement we would expect to see a modest continuation of Friday’s EUR appreciation and declining implied volatility. However, the EUR rally is likely to be short-lived and we recommend using any appreciation to initiate short EURUSD positions,” Barclays advises
In line with this view, Barclays maintains a short EUR/USD position from 1.1240, with a stop at 1.1680, and a target at 1.0460.
Reports from the euro zone leaders all night talks in Brussels shows a deal has finally been reached, a deal to keep Greece afloat and part of the euro currency union.