06/07/2015: Volatility soars with euro under pressure after Greece votes “No”

Market Overview

With Greece voting with a resounding “No” to the demands of the creditors, the ball has been smashed straight back to the court of the EU, ECB and IMF. A meeting is now due for Tuesday to discuss how to move the situation forward. Greece does not accept the harsh austerity being thrust upon it and now the decision must be whether to restructure the debt profile, or whether the ECB is told to not increase the liquidity to the banks which would be akin to ushering Greece towards the exit door of the Eurozone. Greek finance minister Yanis Varoufakis has resigned, which could help to smooth the road to a deal, but from a Greek perspective, Tsipras has given the creditors a massive decision to make. Will the ECB really do whatever it takes to save the euro? Is the euro a one way train or is it a revolving door currency? We are now likely to find out now sooner rather than later.

In the meantime, volatility on financial markets will be elevated. The immediate reaction on currency markets was to sell risk and buy safe havens. The euro (obviously) came under immediate selling pressure, as did the Aussie. However, there has been a jump back after the initial reaction, suggesting perhaps that the forex markets are reasonable stable moving into the European session. Equity markets have come under the biggest pressure, with Asian markets generally around 1% to 2% lower (Japanese Nikkei 225 was off 2.1%), whilst the European markets have also started under significant pressure. Be mindful of the reaction though from last Monday where markets rebounded sharply through the day amidst high volatility. Interestingly, the initial safe haven buying pressure on gold has dissipated though the Asian session and is now trading around flat on the day.

Traders will clearly be focusing on reaction surrounding Greece today, but with the US on public holiday on Friday they still have to announce the ISM Non-Manufacturing PMI at 1500BST today. An improvement to 56.2 is expected (up from 55.7 last month).

Chart of the Day – EUR/GBP

The euro has opened under pressure, but it is interesting that there has been a recovery in the immediate move lower overnight, and support at £0.7050 has been left. Considering the technical outlook on the daily chart going into today has been fairly settled and only slightly on the bearish side of neutral, this reaction today should not be without grounding. The chart is still running off the legacy of last Monday’s bullish engulfing candle, whilst the daily Stochastics are rising and the MACD lines seem to be bottoming out. In fact, looking at the hourly chart, even with the overnight weakness, the outlook remains neutral across the technical studies. The longer the support at £0.7050 remains intact, the more confident the euro bulls will become. The loss of support at £0.7050 would re-open the key low from last Monday at £0.6980, however if the bulls can build on the overnight recovery then a close today above Friday’s closing low at £0.7136 would actually be a bullish signal.

EURGBP   06072015


Considering the uncertainty and political turmoil, technically speaking, there has been some early pressure on the euro, but nothing too horrendous yet. The spike low seen last Monday at $1.0953 remains intact, however the outlook for the indicators continues to deteriorate. The past couple of weeks has shown a continued tendency to use rallies as a chance to sell and this now seems to be the strategy on the euro. The issue faced today is though how to react to any intraday rebound. Last Monday the initial 200 pip sell-off was then greeted by a 300 pip intraday rally only to then peak out and drift lower today. The volatility in today’s session could be equally as significant. The initial overnight rebound has already come back to find resistance with the $1.1050 medium term pivot level. I still see that this can be used as a gauge for sentiment, even today, holding above it would be a suggestion that the bulls are fighting back. The key near term resistance comes with Friday’s high at $1.1117.  Intraday hourly momentum indicators are in bearish configuration and suggest rallies are a chance to sell.

EURUSD   06072015


The correctional drift on Cable has continued over the past few days and with a 35 pip gap down at the open today, the pressure remains to the downside. This is reflected in the continued negative configuration on the Stochastics, whilst the RSI and MACD lines are also in decline. The near term downside target from the near term range breakdown from last week has now been achieved at $1.5535, whilst the break down below the 50% Fibonacci retracement of the previous $1.5188/$1.5928 rally at $1.5558 means that the next key marker post is 61.8% Fibonacci at $1.5471. This is just above the $1.5450 level which I see as the next key support. The hourly momentum indicators show that selling into any intraday rebound remains the most viable strategy, with the RSI consistently falling over around 60. The 50% Fibonacci level is now an area of resistance and I would expect a retest of the overnight low at $1.5515 in due course before further declines.

GBPUSD   06072015


The safe haven yen trade is back in play again today. However once more perhaps the downside pressure is not as significant as perhaps it could be. It will be interesting to see how the European traders react as the initial selling pressure on Dollar/Yen has found some overnight buyers. Interestingly the in initial gap lower has already been filled and the immediate overnight low at 121.72 has yet to be tested again. The configuration of the hourly technicals are still corrective and selling into rallies is still the appraisal. However I still believe that without a close below the old breakout at 122.02 the medium term range play is still intact. The 38.2% Fibonacci retracement at 123.20 still has a part to play in this chart and is once more acting as resistance.

USDJPY   06072015


The strategy for gold over the past few weeks now has been to use rallies as a chance to sell. The reaction to the rebound in the price overnight suggests that this is still a good way to play gold. The gap higher at the open has been filled already and the current look at gold suggests that once more any strength should be sold into as the outlook on the daily chart remains technically corrective. The price action on Monday of last week is worth looking at again, as the initial gap higher at the open proved to be the high for the week and there could be similar concerns today. Already the hourly momentum indicators have rolled over and are deteriorating again. The rebound high is so far at $1174.70 but if the reaction of the bulls in the European session is not to come back in full force and quickly test the opening high then the pressure could quite quickly build to the downside again. The low of last Thursday at $1156.85 could easily be retested again.

Gold   06072015


WTI has finally broken. The support that had been holding has now been decisively breached. The sharp selling pressure on Friday afternoon has resulted in a break and although a close below the support of the range low at $56.50 was narrowly averted, the immediate selling pressure at the open today again reflects the broken range. This now means an initial test of the neckline support of the old base pattern at $54.24 is on. However the range breakdown (I suppose to now be called a top pattern) gives us an implied target of around $7 below the breakdown level, which could mean downside towards $49.50 in the coming weeks. The daily momentum indicators certainly confirm the breakdown with RSI MACD lines and Stochastics all at their lowest levels (and falling) since March. This suggests that rallies are now a chance to sell. The immediate resistance comes at the old support of the range at $56.50, however, any rallies towards the rebound high and resistance around $58.00 would still be simply a bear rally now.

WTI   06072015

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