Currency Analyst since 2010

EUR/USD: intense week is coming

Elizaveta Belugina

After trying to approach 1.15 EUR/USD fell to 1.0820 where it managed to find some support. The pair was driven down by the US dollar’s strength.

The main factor for the pair still is the policy divergence between the Federal Reserve and the European Central Bank. Watch the rate spreads between the US and the euro zone. The market’s sentiment about the Fed is changing every week. For now the majority expects the US central bank to tighten policy in September. The ECB, on the other hand, conducts quantitative easing and may even buy more bonds than usual in the coming weeks. The general layout is against the euro.

Another factor to watch is Greece. Hopes of a deal between the nation and its creditors put a limit on the decline of the single currency. However, even if there is a solution, the advance in the euro should be short-lived as Greece will face further debt difficulties in July and later this year.

In case of no deal the situation will be more unpredictable. On Friday, June 5 Greece will have to repay 300 million euros to the International Monetary Fund. Without the money from creditors the nation won’t be able to meet this commitment. After that the rating agencies probably won’t immediately cut the nation’s credit rating to the default level. There’s a way for Greece to win some time: it may put together all the IMF repayments due in June and pay them at the end of the month. However, there’s a great risk that the absence of payment will cause a market panic and a bank run in Greece. Such turn of events won’t leave the euro unhurt.

Resistance for EUR/USD lies at 1.1063, 1.1100 and 1.1300. Support is at 1.0800 and 1.0715/00. On Wednesday, June 3 don’t miss the ECB meeting. The central bank has recently refused to raise the ceiling for liquidity assistance for Greek banks, and this may be an important topic at Mario Draghi’s press conference. On Friday watch American non-farm payrolls and OPEC meeting.

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