Is the Japanese Yen about to erase all Euro gains?
As quite worrisome comments are hitting the wires and services PMI’s out of the Euro Zone are not stellar it seems the risk off mood is taking over the markets again and we will see a protracted drop in the EUR/JPY pair.
European officials were on commenting on the latest Greek issues stating that the country has “3 days to deliver or face consequences” – whatever that means.
So let’s delve in deeper and try to understand what these words actually stand for - Greece has three days to its European peers and the IMF that it has the ability to deliver on the implementation of reforms attached to the conditions of its bailout in order to receive its next tranche of aid.
The lenders are quite unhappy with lack of progress Greece has demonstrated towards reforming its public sector, some talks have surfaced of a suspension of the inspection by the Troika, while another said they might suspend an inspection visit they resumed on Monday. The Mediterranean country has about 2.2 billion euros of bonds pending redemption in August, so it is essential for the talks to conclude successfully. Should they fail, the IMF might have to withdraw from the 240 billion euro ($313 billion) bailout to avoid violating its own rules, which require a borrower to be financed a year ahead.
Services sector PMI’s were reported with Spain and France marking gains towards the 50.0 contraction mark and Italy deepening in turmoil. German PMI was surprisingly weak, barely in expansion territory at 50.4, which hammered the Euro across the board with rates reaching a low as 129.02 before stalling.
The European Central Bank, while acknowledging tentative signs of Euro Zone economic recovery, is expected to refrain from major changes in policy course on Thursday and keep its easy-money policy and dovish rhetoric in place. It sharply contrasts with plans by the U.S. Federal Reserve to begin withdrawing its stimulus.
The Governing Council of the Central Bank is far off such a step and policymakers may still have to go out of their way to reassure markets that the Euro is indeed irreversible like Mr. Draghi claimed a year ago. Resurfacing jitters with Portugal’s government being on the brink and Greece’s having a tough time enacting austerity will certainly delay any easy policy withdrawal.
Looking at the charts binary options traders are observing an outright crash following the London opening. EURJPY is currently consolidating around 129.20-25 and we expect the down move to resume as the US traders’ influence kicks in at the New York open. We would be selling daily, hourly and 2 hours puts at any rise towards the 129.50-60 area. A potential continuation of the drop would certainly discourage bull even further and with many stops building up a further sharp decline is not out of the question. The negative scenario would only be invalidated if we see a sustained hourly close above 130.20.