Is the Euro finally back to its fundamentals after the Greek deal?

Greece has paved the path to staying in the EU for now.
An agreement between EU officials and the Greek government was finally reached on Sunday after a 17-hour negotiation marathon. An agreement is one thing while the implementation is another beast; at least this chapter of the saga is closed. The Euro had a 70 run up against the USD, but it soon reversed and started a 230 pip downtrend these past two days. From the reactions we have seen in the Euro, where every rumour about a possible deal has sent the Euro surging, you´d think that an actual deal would send the Euro sky-high, but this is not so. In fact, the Euro is more than 200 pips down after the first knee-jerk reaction. So why is the Euro weaker after the deal?

First, as we mentioned above the implementation of the programme is much harder than the agreement. Secondly, this is a deal to end the last bailout programme. After it is completed, which will be in 6-12 months, the next round of negotiations concerning another bailout will resume. But this is not the most important reason. The real reason is that with the Greek troubles out of their way, the Euro traders are now back to trading Euro fundamentals and these aren’t looking great. The Eurozone industrial production data was published this morning and showed a 0.4% contraction in this sector – last month this was revised lower as well. Even the ZEW sentiment came out below the expectations, which shows that Europe is still not out of the woods yet economically speaking, and that´s why the Euro is more than 200 pips down from Monday morning.

So, what´s our forex strategy, how are we going to trade this Euro weakness which has translated into USDollar strength? Well, we think it´s safer to sell other currencies, such as the AUD and NZD, because the moves and retraces in the Euro have been quite large recently, meaning our stop loss might get triggered even if we are on the right side. That´s why we issued two AUD/USD sell forex signals yesterday and opened an NZD/USD sell signal this morning. However, we won´t reject any good trades in EUR/USD. If it gets near 1.1050s, we will consider opening a sell forex signal as that used to be a strong resistance level.

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.