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Euro Falls on Increased Speculation Greece Will Miss Payment

The EUR/USD was under pressure on Tuesday as fears grew about Greece’s ability to pay its debt obligations. Concerns were raised over the week-end after Greek Interior Minister Nikos Voutsis said Sunday that the government won’t have the money it owes the International Monetary Fund (IMF) next month unless Euro Zone Finance Ministers and international creditors agree to rescue funding.

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The next payments due June 5 and June 19 call for Greece to repay 1.6 billion Euros ($1.76 billion) to the IMF.

A Greek government spokesman tried to clarify Voutsis’ statement when he said on Monday that the country has the responsibility to repay its obligations both internally and to its international creditors, and that the government aims to have a deal by the beginning of June. This may sound like an optimistic statement, but the sell-off in the market suggests investors may be preparing for the worst.

There were no major reports tied to the GBP/USD on Tuesday, but the Forex pair weakened anyway in sympathy with the drop in the Euro. Investors were taking protection against the U.K.’s exposure to the Euro Zone because of the Greek situation.

Also putting pressure on the EUR/USD and GBP/USD was today’s U.S. Durable Goods report for April. The report showed durable goods came in 0.5% lower. This was in line with expectations. Non-defense capital goods orders excluding aircraft rose 1.0 percent last month.

Also supporting the dollar against the Euro and British Pound was the better than expected S&P/Case-Shiller composite index report. It showed that housing in 20 closely watched metropolitan areas gained 5 percent in March on a year-over-year basis. Economists were looking for a reading of 4.7%.

Later today, traders will get the opportunity to react to the latest New Home Sales figures. This report is expected to show a reading of 501K. Last month, the report showed a reading of 481K. Flash Services PMI is also expected to show a reading of 57.0.

The sharp rise in the dollar helped trigger a sell-off by the August Comex Gold futures contract. Technical factors also contributed to the break since support failed at a major retracement zone bounded by $1201.40 to $1294.00. Another catalyst for the weakness is the prospect of higher U.S. interest rates. Gold doesn’t pay a dividend or interest so higher rates make it a somewhat undesirable investment.

The stronger U.S. Dollar and worries about increased OPEC and U.S. production pressured July Crude Oil prices today. The strong downside momentum puts the market on a path towards $56.95 to $55.54. The recent rise in oil prices may have encouraged U.S. producers to boost drilling activity. 

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