Greek Referendum Results – Forex Trading Tips

According to Greek Referendum Results the people of Greece said ‘No’ to accepting creditors’ proposals by a 61.3% majority. What happens now is not clear as this is unchartered territory and as such we expect to see risk-off sentiment in the market. Most investment banks have made it clear that the result of the referendum significantly increases the chances that Greece will leave the European Monetary Union, however Greek officials appear to believe that will not occur. It appears negotiations will recommence today but goals and probable outcomes are uncertain.

We will consider the following trade if the situation regarding Greece worsens and a Grexit becomes more likely. In the event of risk-off flows we expect yen to strengthen and USD to weaken due to a scaling back of rate hike timing due to contagion risks associated with Greece. This is a tentative trade call contingent upon an escalation of the current financial uncertainty.

Current Sentiment:

In early Monday trade EURUSD was down 145 pips from Friday’s highs while EURJPY was down 300. Both pairs have regained much of their losses in similar fashion to the price action witnessed last Monday. Price action today will be unpredictable and volatile.

Greek Finance Minister Varoufakis has announced he will leave the Ministry of Finance as several Eurogroup members have requested he not be involved in future negotiations.

Meanwhile in Australasia the Treasury Department of New Zealand stated there is a risk of weaker than expected growth. This matches our bearish fundamental bias on the currency. The PM also stated that Kiwi may move well below 65.

Fundamentals:
The USD remains the strongest currency in the longer term. The market is expecting the Fed to raise rates around September. Recent NFP readings have been positive and core inflation has, overall, been trending higher. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against many counterparts and therefore may be susceptible to pullbacks – such pullbacks will likely provide buying opportunities. The recent FOMC statement showed the Fed are on track to raise rates in the context of an improving economy, however USD saw heavy selling as the economic projections for the FFR in 2016 and 2017 were scaled back. If the market or the Fed see a deterioration of the Greece situation as a threat to global financial stability, then we may see rate hike expectations pushed back.

EUR: The referendum on July 5 rejected the creditors’ proposal and has created a substantially uncertain situation in Greece and the rest of Europe. The market will be watching any developments closely to gauge whether a resolution is possible, or if an exit from EMU by Greece is more likely. Already a fundamentally weak currency due to extremely loose monetary policy, we now expect its depreciation to accelerate over the medium term. We expect, and have seen, huge volatility in the currency and this will continue until some resolution is found for Greece.

GBP is looking at a rate hike around the middle of 2016 and is therefore a fundamentally bullish currency in the long term. The latest jobs numbers showed much better than expected average earnings figures and this is very bullish for the pound as it brings forward the timing for rate liftoff. We are also aware of two of the nine MPC members being very close to voting for a rate increase. GBP has had a strong rally over the past several weeks and is currently near long term highs against most counterparts. Barclays forecast the BOE to hike rates in Q1.

AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD. Overall the bias for AUD is on the bearish side, until we see more data. Language from Governor Stephens recently has been dovish. A resumption of the downtrend in base metals will also see AUD pressured.

NZD has a new official cash rate of 3.25% after the RBNZ cut rates on June 11. The Bank has left the door open for further easing and as such the Kiwi dollar is a bearish currency in the medium term. The recent GDP reading showed a huge miss and this adds weight to the chance of another rate cut, with some banks calling for two more cuts in 2015. Kiwi is at multi-year lows. Credit Suisse’s OIS market is pricing an 92% chance of a cut at the July 23rd meeting.

CAD remains on the weaker side of neutral. In the absence of unexpected data, CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD. Recent GDP readings have opened speculation of a rate cut by the BOC as early as this month.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing. The Greek crisis is likely to see yen appreciate.

CHF is fundamentally a weaker currency given the SNB’s negative interest rates. It is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is approximately 75%.

Technicals:
We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:
Today we’ll see Ivey PMI from Canada, ISM Non-Manufacturing PMI from US and in early Asia, New Zealand NZIER Business Confidence.

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About the Author
Jarratt Davis is the world’s ranked #2 (2008-2013) Forex Trader by Barclays FX Hedge Index, following years of mastering his art as a self employed trader Jarratt has now entered the field of education and delivers the most robust Forex education package on the market. Jarratt’s mentorship is one of the only programs on the market that is conducted by a verified professional trader. Forex Alchemy readers can get the FREE mini course where Jarratt gives away some of his secrets to success by Clicking Here... [space height="20"] [social type="facebook"]www.facebook.com/JarrattDavisForex/[/social] [social type="twitter"]https://twitter.com/jarrattdavis[/social] [social type="google-plus"]https://plus.google.com/+JarrattdavisForexTrader/[/social] [social type="youtube"]https://www.youtube.com/user/JarrattDavisForex[/social]

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