EUR USD (1.4255) Jean-Claude Juncker apparently spooked the forex market yesterday by calling into question the next tranche of Greece’s rescue loan. The Eurogroup chief said that the IMF may not disburse its portion of aid for the 29th June payment and that the IMF expects the EU to step in to make up the difference, which he insisted it won’t. The euro fell back under $1.41 after the announcement, but only briefly. However, the euro’s subsequent recovery seems not to have been by virtue of its own strength, but rather by fault of a deteriorating US-dollar index. It is precisely for this reason that the rally is unwelcome in short-term trading circles. These operators had been rewarded over the past month by selling the euro going into the weekend in anticipation of some dramatic political development ahead of the Monday open. Commentators report that the dollar found no support in the Asian session this morning because of the disappointing US fundamental data yesterday, but we suspect that investors are turning away from the dollar for more ominous reasons. Presidential candidate Ron Paul recently said that a US default is inevitable, either through dollar devaluation or through an outright suspension of payments. In that sense the dilemma in Greece is scarcely different, just smaller.
The euro rapidly approached the bullish hurdle at 1.4310 on short-covering. Support has meanwhile improved to 1.4130.
Market Bias Index
Traders likely perceive the Swiss franc as even more overvalued today. In contrast, the EUR/USD bias is now all but vanished.
Deutsche Bank
Fixed Income Research – Global