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Euro Notches Up 3-month High as Bunds Continue to Slide
The EUR/USD currency pair notched up a fresh three-month high at 1.1439 on the back of dollar weakness following Wednesday’s softer than expected retail sales. The decline in Bund prices have seen the treasuries yield advantage erode back to the 151 basis points, down from levels above 160 basis points that were seen earlier in the week and well off the 185 basis points levels seen just last month. The next level of target resistance is the February highs at 1.1540.
The selloff in Bunds, which started in the middle of April, has already wiped out the positive impact of the ECB’s QE program, with the June contract at levels last seen in December last year. Yields have risen sharply not only in Germany, even if they remain low by historic standards. The ECB’s bond purchase program on the secondary market also means reduced volumes on the open market, which increases volatility, but the Greek crisis is also a factor unsettling investors.
The Greek government has locked itself into a corner, as election promises colliding with the reality of the country’s finances and the situation in the Eurozone. The government needs ongoing financial support from its creditors but won’t get any further funds without going back on a number of its promises. Tsipras’ demand may be backed by the electorate but as it has been said elsewhere, you cannot vote yourself rich and faced with the reality of the situation, it may indeed be best to go back to the Greek public and get backing for a deal with the troika that drops the promises made during the election.
Effectively it is a choice between staying in the Eurozone or defaulting and going its own way, which would mean there is no chance that Tsipras can fulfil the promises made. Opinion polls suggest most Greek’s realize this and will back a deal that secures Greece’s future in the Eurozone.
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