Market Drivers

by bentonpena on May 26, 2011

Today’s Comment

The market still awaits clarification of the Greek crisis

EUR/CHF (SELL): We reiterate our SELL recommendation (sell EUR against CHF) with the target of 121 for EUR/CHF.
EUR/GBP (NEUTRAL): The cross rate did not close below important technical levels. We maintain our NEUTRAL recommendation.
EUR/USD (SELL): The trend is down. Sell in the event of corrections.

The FX market is still awaiting further news and eventually a clarification of the crisis in Greece. Nonetheless, it should not come as a surprise if, in the meantime, we see some fairly strong corrections following the recent weakening of EUR. The interest-rate prospects in Europe indicate, per se, that EUR might be increase somewhat, but the debt crisis is similar to a ‘volcanic cloud’ over the single currency. We expect that the generally negative pressure will remain until at least early July.

EUR/CHF (SELL): As stated above, it is worthwhile to keep an eye on any short-term change in sentiment, as this may give rise to major upward movements again due to the currently very biased trading and short-term expectations of CHF. Technically there are elements of danger in the short term. If you intend to place a S/L or a S/P for positions, 125.25 would be a reasonable level. Yesterday we changed our target from 123 to 121. We reiterate our SELL recommendation and believe that corrections will be short-lived. Currently our long-term (3 to 12 months), view is unchanged.

EUR/GBP (NEUTRAL): We reiterate our NEUTRAL recommendation. The cross rate seems to be ‘sluggish’. As stated before, considering that the new budget year (involving massive cuts in public spending) only began in early April, we are a bit concerned in respect of GBP over the coming two or three months. It is still uncertain how this will reflect on the coming economic indicators. Next week’s consumer-confidence data will be interesting.

EUR/USD (SELL): We recommend SELL with the target at 137. The overnight movement upwards can primarily be attributed to an article in the Financial Times in which Klaus Regling (director of the European Financial Stability Facility (EFSF)) claims that China is very interested in buying the bonds that will be issued in June in connection with the rescue package for Portugal and Greece.

Today’s most important events: (* = consensus)