Why the Euro rallied and the potential Grefault


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30 June, AtoZForex .com Lagos  News of Greece and the likelihood of a default and an eventual Grexit was the major market headline yesterday. In somewhat of a surprising move, the Euro rallied during major trading hours after opening Sunday evening trading with a gap down. Why the Euro rallied is because of the intervention by the Swiss National Bank, as well as unwinding of positions. Last week, the SNB governor said the franc remained “significantly overvalued,” and said the SNB was willing to intervene in foreign exchange markets if necessary.

On Sunday night, the SNB intervened in the currency markets  to stabilize the strong franc after the concerns over Greece’ potential exit from the eurozone triggered renewed buying of the Swiss currency as a safe heaven currency. Thomas Jordan, Chairman of the Swiss National Bank’s governing board, said the bank had been active in trying to stabilize the franc. “It is currently a very difficult situation and we are observing developments very closely,” Mr. Jordan said, referring to Greece’s financial troubles and the pressure it is placing on Switzerland’s currency.

The fear of a Grefault today

Today, Greece remains the major point of focus as it is due settle its bundled debt to the IMF today. A Greek official said Greece will miss a $1.77 billion debt repayment to the International Monetary Fund, after the country’s European partners shut the door on extending a credit lifeline. Greece Prime Minister Alexis Tsipras announced bank holidays and other capital controls to keep banks from collapsing under the weight of mass withdrawals. Rabobank senior currency strategist Jane Foley put it: “If people were questioning the whole coherence of the EMU, then they would want to get out of the euro. The euro’s resilience suggests that people don’t believe that the EMU will fall apart, even if Greece exits,” Foley said, highlighting a move into safe-haven German Bund yields as evidence that investors are not pulling out of European assets completely. The fear of a default today is expected to weight further on the Euro, likely to send it down.

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Screen Shot 2015-06-30 at 7.14.55 AM ANZ Research

ANZ Business Confidence

Today, the ANZ Business Confidence which is a Level of a diffusion index based on surveyed manufacturers, builders, retailers, agricultural firms, and service providers came at -0.3. According to the ANZ research report, the economy is showing signs of heading off-piste. Business confidence has slipped into the red. The last time we saw business confidence in negative territory was post the most serious earthquake in Christchurch, and prior to that it was 2009, when the economy was in recession. We’re only just in negative: a net 2% of businesses are pessimistic about the general economy. It’s not a crevasse, but a crack has certainly opened up. The economy may be on the path of a slowdown, which may prompt further rate cuts as the RBNZ has clearly left this option open.

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Keep an eye on the following:

  • 8:30 A.M GMT: UK’s Current Account is expected to show a deficit of -23.7B.
  • 8:40 A.M GMT: Also, reserve bank of Australia Gov Stevens is due to speak at the Official Monetary and Financial Institutions Forum, in London;
  • 12:30 P.M GMT: Canada’s GDP m/m
  • 2:00 P.M GMT: US CB Consumer Confidence

The major driver of the markets today is expected to remain news about Grefault, Greferendum and Grexit.

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