By Dean Popplewell
So far the EUR remains on the main menu, despite so much of the single currency on offer at these lofty heights. There is market talk of another "yard" (+EUR1b) to go at 1.25. Even with the ample supple, the market short wide currency of choice retains a solid bid. Algorithmic stops are eyed above 1.249 while similar option orders are positioned above the figure just ahead of of renewed offers. With so much "wood to chop" perhaps a breather and some market consolidation is in order before the next onslaught. This is bound to be the action of choice with the upcoming meeting’s between the Greek prime minister and eurozone leaders taking place this week. The meetings are expected to put some pressure on the single currency’s recent rally.
Eurogroup’s Juncker visit to Athens today as well as the meetings of Samaras with Merkel and Hollande on Aug 24 and 25 should provide a stern test for the EUR’s, somewhat illiquid, latest bounce that took a few market participants by surprise. Even more so if officials “signal that Greece and its creditors are still far from reaching a compromise.” The market still sees hope now that Germany’s after suggesting, while clearly not willing to provide extra funding to Greece, that she may lean towards making some “small concessions to fiscal obligations.”
Greek Prime Minister Samaras is under immense pressure to persuade his European colleagues that his country has the “will and means” to finally muster the country’s remaining political courage to fulfill the conditions of the last bailout. How is all of this is to occur while the country’s coffers are clearly bear? The natural talk of Grexit from the EUR shows no sign of receding. Euro policymakers are expected to begin bluntly telling Samaras that his country must carry out the promised cuts. The Greek leader continues to ask for more time to implement cuts despite the eurozone's hierarchy remaining adamant about sticking to the payment structure. More time does not mean more money, it will just be giving the country some breathing space to extract “blood from stone.”
All we have been seeing over the past couple of trading sessions is the investor responding positively to market headlines signaling growing support for the ECB bond market intervention but ignoring the uncertainty about the trigger of these actions. The ECB is expected to intervene only after Spain or Italy have made a formal request for a bailout. With little assurance that neither have asked should the EUR not be tested? As mentioned yesterday, it’s all about perception, the illusion that policymakers control their own domain instills market confidence. This is the same in dealer trading, creating an illusion and getting the investor to do what the dealer wants and not necessarily what the investor requires.
Expect the market to be watching the Fed closely over the coming days for signs that the Cbank could act again to boost economic growth. Later this afternoon the Fed’s policymaking committee will release their latest minutes from the last meeting and next week we have helicopter Ben’s highly anticipated speech to look forward to at the Jackson Hole economic symposium. Many suggest that the FOMC minutes today are unlikely to provide more clarity on the outlook for September easing than did the statement following the meeting. Be on your toes for mentions on what the data threshold for new asset buying might be. Before then, the market has U.S. existing home sales to contend with.
The Retail sector’s game plan has not changed. They continue to add to their core short EUR positions that was first established last Friday. Investors are willing to sell rallies ahead of 1.2480 in anticipation of deeper losses in the coming sessions towards the consensus medium term objective of 1.2150. The bigger short positions remain comfortable as long as the market remains trading below 1.2516. However, trade momentum favors right hand side for the moment, so expect a few nervous shorts stops to be triggered every now and then.