MARKET BRIEFING – LONDON OPEN 07.07.2015
Sunday’s surprising news that the Greek public had voted “No” in the Greek referendum was followed on Monday by the news that the combative Greek Finance Minister Yanis Varoufakis had resigned his position.
Did he go under his own free will or was he pushed? For certain the European Finance Ministers and especially the German Wolfgang Schäuble will be relieved to see him go. However Varoufakis was good value and it is a shame that his expressive language and cool demeanour will no longer be a feature of the European scene.
Varoufakis has been replaced by the academic Euclid Tsakalotos as the Minister of Finance. Mr. Tsakalotos is much more softly spoken and measured in his comments when compared to his predecessor. However under that mild demeanour and English accent is another strong and intelligent mind. There is no doubt that after Varoufakis had done his job of softening up the Europeans, it is now the job of Tsakalotos to lower the tone but at the same time negotiate hard.
Mr. Tsakalotos will need to use all his skills and experience to bring about a compromise solution to the Greek debt crisis. The Greek Prime Minister will be hoping too that Tsakalotos could reinstate the burnt bridges and bring back the trust that was lost with the announcement of the referendum.
The Greek Premier Alexis Tsipras has a view that the Greek referendum victory has strengthen his negotiating hand. The Greek public and the bosses of the Greek banks are hoping that he can deliver on his promise to construct and agree on a compromise formula over the next few days.
However it is still very uncertain if the Europeans will agree. As always the head of the Eurogroup Jeroen Dijsselbloem has been dismissive of the Greek side. The French side however has been more conciliatory in their position. What is of greater concern is an apparent hardening of the position of the German Chancellor Angela Merkel.
Europe is now becoming increasingly divided. One side being resigned or actually encouraging the Greek to take a decision and leave the Euro area. On the other hand, Governments that fear for the consequences of a Grexit are concerned about the consequence could be if Greece finally and after 5 wasted years falls out of the Eurozone.
Although the Lehman’s debacle in balance sheet terms was roughly double the size of the current Greek debt, unraveling the after effects of a debt default and Grexit is still unclear. This is one of the key cards that the Greek Prime holds. It is his hope that the Europeans will therefore be forced to act so as to mitigate the unknown or likely consequences of Greece falling out of the Euro.
Furthermore if Greece ends up having no choice but to exit the Euro, the cost to the Europeans will be very high. Not only do European tax payers lose some Euro 330 billion but there will also be the longer term costs of shoring up the Euro area.
Once Greece exits the Euro area, the concept of the irrevocability of Eurozone membership ceases to exist. This will lead to added pressure on other periphery countries and puts at risk Portugal, Span and Italy.
Europe and by this I mean the Germans will be forced to shore up the defenses so that contagion does not bring other countries down. The cost of further fiscal and banking union will dwarf the cost of keeping Greece in the Euro.
One final factor that needs to be addressed is that of Geo-politics. Greece is at the frontier of Europe’s eastern border. The neighbourhood that Greece resides in is far from stable. An exit from the Euro will leave a key NATO country exposed and without allies in the region. The concern will be that a European rejection will send Greece into the arms of the Russian bear.
There has been some good news over the past few days in that all Greek political parties have backed any agreement that will be reached in Brussels. This eases the issue of implementation.
It is now time for Europe to grasp the key issue of solidarity. The Euro was a flawed creation and continues to be a single currency that is not fit for purpose. It is time that the Euro’s deficiencies are recognized and fixes implemented for the sake of all of Europe’s citizens.
EURUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.1174
Target 2: 1.0936
Projected range in ATR’s: 0.0119
Daily control level: 1.1125
GBPUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.5701
Target 2: 1.5505
Projected range in ATR’s: 0.0098
Daily control level: 1.5650
USDJPY
The intraday technical outlook
Trend 1 hour: Down
Target 1: 123.89
Target 2: 121.72
Projected range in ATR’s: 0.83
Daily control level: 123.00
USDCHF
The intraday technical outlook
Trend 1 hour: Up
Target 1: 0.9523
Target 2: 0.9325
Projected range in ATR’s: 0.0099
Daily control level: 0.9385
USDCAD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.2748
Target 2: 1.2550
Projected range in ATR’s: 0.0099
Daily control level: 1.2530
AUDUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 0.7857
Target 2: 0.7411
Projected range in ATR’s: 0.0088
Daily control level: 0.7550
GOLD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1181.13
Target 2: 1158.93
Projected range in ATR’s: 11.10
Daily control level: 1162.70
OIL
The intraday technical outlook
Trend 1 hour: Down
Target 1: 54.35
Target 2: 51.13
Projected range in ATR’s: 1.61
Daily control level: 56.65
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