Traders' views - Forex

Forex recommendations from Hantec FX's market analyst, who gives us his expert analysis and tips on the EUR/USD, GBP/USD and USD/JPY – as well as his opinion on gold

EUR/USD: A continuing focus on the Greek end-game led to a further debasement of the euro this week. The sheer weight of markets current apprehension set the tone after the pair stooped to US$1.2725 with little reason. With no catalyst to extend the move lower, a relief rally led the pair to recover to US$1.2824. This would prove to be the high for the pair as ‘Grexit’ fears augmented.

In the same vein of late, a systematic sell-off resumed however former Greek PM Papademos swiftly changed this. His comments regarding the ‘real’ threat of Greece leaving the EZ spooked jittery investors. The pair collapsed, with scepticism over the upcoming EU summit only adding to the move.

EU officials had attempted to water down expectations of the upcoming EU summit, and with good reason. The meeting provided no tangible relief for despondent markets, and with the backing of corporate sellers, the euro smashed through the US$1.2600/2550 barriers. Without hiatus the onslaught continued with another round of weak PMIs in Europe and a weaker-than-expected German Ifo survey. One-sided demand for the dollar resulted in a near-two year low of US$1.2515.

On Friday the pair managed to recoup some of its losses, however this only provided investors with an opportunity to sell on the rally. Contagion fears were rife after Catalonia, a region in Spain, pleaded for support from the central bank. This triggered a sharp move lower that saw a large barrier at US$1.2500 breached.

It is likely the euro will continue to weaken against the dollar as uncertainty keeps markets on tenterhooks. Any positive news however will see a strong relief rally.

GBP/USD

For Cable, a data packed week provided a volatile undercurrent to flows that were otherwise dominated by Greek chatter. It began the week positively taking direction from the moves in the euro. The first important data came in the form of CPI, which posted a softer-than-anticipated 3.0%. Cable knee-jerked lower on the news as it reinforced the possibility of further QE later in the year.

Inevitably discussion over Greece overshadowed proceedings, as BoE minutes, revealing an MPC vote of 8-1 to hold the APP, provided meagre support for the pair. UK retail sales data of -2.3% only added to the preponderating gloom. The increasingly morose outlook for Cable was reaffirmed by a downward revision of Q1 GDP, showing a slump of -0.3%. On top of lousy data from EZ crux, Germany, the pair fell to US$1.5639. The risk-off environment continued through to the close of the week with contagion fears gripping Europe sending Cable to US$1.5630.

It is likely sterling will continue to weaken against the dollar in light of the worsening backdrop in Europe and increasingly fragile UK economy.

USD/JPY

A subdued start to the week for the yen pair initially saw it make a slight recovery after the previous week’s setback. On Tuesday Fitch decided to downgrade Japan to A+, keeping the outlook negative, sending investors broadly into the dollar. The rally extended from early European session, late in NY session, reaching ¥80.15 high. The next event came in the form of BoJ who, as widely expected, kept policy unchanged.

In reaction, the yen came under heavy buying pressure nullifying the downgrade gains made for the pair as it plummeted back below the ¥80.00 level, settling at ¥79.23. After hitting its low, the pair quietly rallied revisiting ¥79.82, but lacked the momentum to push back above previous highs.

It is likely the yen will continue to meander higher as demand for safe-havens supports the recent move lower for the pair with EZ concerns dominating sentiment.

Gold

The deepening uncertainty in Europe and the increasing likelihood of a banking crisis in the region have produced an interesting dynamic for the precious metal. On the one hand, the belief that gold is a store of value in times of crisis gives the metal its perceived safe-haven attribute. On the other, its negative correlation with the dollar has recently seen it trade increasingly in tandem with the euro.

This week it would seem its safe-haven quality was outweighed. A feeble attempt at breaking the $1600 soon saw prices falling. The slippery slope, lubricated by EZ problems, drove gold to test key support levels as it collapsed to $1,533 an ounce. The metal did recover towards the end of the week, with some investors squaring positions ahead of U.S. holiday. It ended the week back at $1,573.

It is likely the pressure metal will continue to come under pressure from safe-haven dollar demand, however it will find support from bargain-hunting.

EUR/USD

A continuing focus on the Greek end-game led to a further debasement of the euro this week. The sheer weight of markets current apprehension set the tone after the pair stooped to US$1.2725 with little reason. With no catalyst to extend the move lower, a relief rally led the pair to recover to US$1.2824. This would prove to be the high for the pair as ‘Grexit’ fears augmented.

In the same vein of late, a systematic sell-off resumed however former Greek PM Papademos swiftly changed this. His comments regarding the ‘real’ threat of Greece leaving the EZ spooked jittery investors. The pair collapsed, with scepticism over the upcoming EU summit only adding to the move.

EU officials had attempted to water down expectations of the upcoming EU summit, and with good reason. The meeting provided no tangible relief for despondent markets, and with the backing of corporate sellers, the euro smashed through the US$1.2600/2550 barriers. Without hiatus the onslaught continued with another round of weak PMIs in Europe and a weaker-than-expected German Ifo survey. One-sided demand for the dollar resulted in a near-two year low of US$1.2515.

On Friday the pair managed to recoup some of its losses, however this only provided investors with an opportunity to sell on the rally. Contagion fears were rife after Catalonia, a region in Spain, pleaded for support from the central bank. This triggered a sharp move lower that saw a large barrier at US$1.2500 breached.

It is likely the euro will continue to weaken against the dollar as uncertainty keeps markets on tenterhooks. Any positive news however will see a strong relief rally.

GBP/USD

For Cable, a data packed week provided a volatile undercurrent to flows that were otherwise dominated by Greek chatter. It began the week positively taking direction from the moves in the euro. The first important data came in the form of CPI, which posted a softer-than-anticipated 3.0%. Cable knee-jerked lower on the news as it reinforced the possibility of further QE later in the year.

Inevitably discussion over Greece overshadowed proceedings, as BoE minutes, revealing an MPC vote of 8-1 to hold the APP, provided meagre support for the pair. UK retail sales data of -2.3% only added to the preponderating gloom. The increasingly morose outlook for Cable was reaffirmed by a downward revision of Q1 GDP, showing a slump of -0.3%. On top of lousy data from EZ crux, Germany, the pair fell to US$1.5639. The risk-off environment continued through to the close of the week with contagion fears gripping Europe sending Cable to US$1.5630.

It is likely sterling will continue to weaken against the dollar in light of the worsening backdrop in Europe and increasingly fragile UK economy.

USD/JPY

A subdued start to the week for the yen pair initially saw it make a slight recovery after the previous week’s setback. On Tuesday Fitch decided to downgrade Japan to A+, keeping the outlook negative, sending investors broadly into the dollar. The rally extended from early European session, late in NY session, reaching ¥80.15 high. The next event came in the form of BoJ who, as widely expected, kept policy unchanged.

In reaction, the yen came under heavy buying pressure nullifying the downgrade gains made for the pair as it plummeted back below the ¥80.00 level, settling at ¥79.23. After hitting its low, the pair quietly rallied revisiting ¥79.82, but lacked the momentum to push back above previous highs.

It is likely the yen will continue to meander higher as demand for safe-havens supports the recent move lower for the pair with EZ concerns dominating sentiment.

Gold

The deepening uncertainty in Europe and the increasing likelihood of a banking crisis in the region have produced an interesting dynamic for the precious metal. On the one hand, the belief that gold is a store of value in times of crisis gives the metal its perceived safe-haven attribute. On the other, its negative correlation with the dollar has recently seen it trade increasingly in tandem with the euro.

This week it would seem its safe-haven quality was outweighed. A feeble attempt at breaking the $1600 soon saw prices falling. The slippery slope, lubricated by EZ problems, drove gold to test key support levels as it collapsed to $1,533 an ounce. The metal did recover towards the end of the week, with some investors squaring positions ahead of U.S. holiday. It ended the week back at $1,573.

It is likely the pressure metal will continue to come under pressure from safe-haven dollar demand, however it will find support from bargain-hunting.