Expecting the Euro to begin recovering losses

The risks surrounding the ongoing situation in Greece were continually ignored and severely underpriced in the financial markets, therefore it is no surprise to learn that the global markets have commenced the week suffering significant losses. To be honest, most of these pressures were inevitable with the risks around Greece being repeatedly ignored despite it becoming apparent to most that a deal was not going to be reached between Greece and its creditors.

While Greece is the weakest member of the Euro and might not have the largest economy by any means, the global implications to Greece failing to repay its debts remain largely unknown and this is why worldwide indices will continue facing downside pressures.

Due to the fact that the EURUSD was unable to fall below 1.10 for any sustained period of time and managed to bounce back above what has become a psychological level, I wouldn’t be surprised to see the pair reach 1.11 as European trading gets underway. While the Euro is going to be under continuous pressure this week, there will be Euro purchasing early on as investors await for clues on what will happen next. There will also be a delay in information on what actually happens next, and this is what makes me confident that we will now begin to witness some unexpected Euro purchasing. The Euro will find it tough to extend any higher than 1.11 against the Dollar and 136 against the JPY, but when you bear in mind that the currency fell to 1.09 and 134 against the USD and JPY in early trading, this is still a recovery.

Aside from the JPY, there was also an increase in Gold demand as investors looked towards safe-haven assets. The yellow metal managed to climb towards $1187, but I also expect Gold to begin withdrawing its gains early in trading. It’s important to remember that while the situation in Greece is unusual, many expected that capital controls would be inevitable and I am personally surprised that they were not installed earlier. There is going to be a delay in new information and with Greece having not yet defaulted on its loan, there will be a reversal of gains.

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