Tuesday, July 7, 2015

Euro – dollar: ‘Greek Gap’ support holds | Makes for a strong exchange rate support level

At the start of trading for this week and last, the EURUSD pair has gapped down on news out of or concerning Greece and its tortuous negotiations with its lenders in the EU and the IMF. In each case the exchange rate came to rest at roughly the same level, and a support zone centred on 1.09611 US dollars to the Euro was thereby established. Also in each case, the gap was filled, which is to say that the rate quickly travelled back up to at least where it had been prior to the gap.

As we have noted previously, many traders, particularly in equities, will ‘fade’ such as gap – they will take trades the success of which will depend on the gap being filled.

Yesterday, the above mentioned support level was severely tested. The rate dipped below for a while but, crucially, at the daily close it was above. It was also above the psychologically important big round number of 1.10.

Makes for a strong exchange rate support level

All of this makes the region described a strong support level. Add to that the fact that reaction to the outcome of the Greek referendum, carrying with it, as it does, at least a small existential risk for the Single Currency, has been muted in comparison to the mayhem that had been feared, and it can be seen that events have proven, once again, that the Euro is a resilient member of the global family of major currencies.

That, however, may all depend on whether or not agreement on a new bailout for the Hellenic Republic can be negotiated before the next payment to the ECB is due, on July 20th. Hard lines have been drawn around this event: If not met it will be an unambiguous default, and the rules of the ECB dictate that if that happens even the emergency funding that has been keeping the Greek banks alive, albeit in a state of suspended animation, will have to be cut off.

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