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Why Euro will break Euro/Dlr 1:1 Parity to test 0.9775

July 6, 2015

EURO @ 1.1115
A decisive “No” to austerity from Greek referendum for international bailout endorses Syriza party’s call to reject Troikas demand, which clearly suggest that majority of the people disagrees with the lenders austerity demand. Greek government lead by PM Tsipras has a strong mandate.

In a way, this also means large number of people believe that the revival of Greek economy is only possible after parting away with the European community.

While, ECB may have prepared a contingency plan to counter turbulence by expanding the size of its quantitative easing, as risk of contagion is looming. Hence, negotiation for new bailout between Greece and ECB could be an alternate, which means Greek will make fresh demand for conditional lending.

Obviously, if the two sides agrees, the key decision will come from ECB, but initially European Central Bank will have work on the basis of Euro-zone regulations.

Grexit surely will incur losses to Greek bond holders. German Central Bank (Bundesbank) will have to take the biggest hit, as its has total exposure of Euro 35 billion, followed by France with Euro 27 billion, Italy Euro 24 billion and Spain having fourth largest exposure of Euro 17 billion.

A No Vote also puts Greece at risk for another currency, probably back to Greek Drachma, which as well means probably exit from the Euro-zone region.

However, the key to Monday’s move in the financial market will be official response form EU Commission, a delay would certainly hammer European currency, which should take good beating.

Regarding Euro’s next trend, I would like to remind my readers that on March 16, when Euro was trading @ 1.0495, I gave a Medium Term outlook Euro’s Next Move (M/T Direction), which is available on

https://www.linkedin.com/pulse/euros-next-move-medium-term-direction-asad-rizvi?trk=mp-reader-card

In my arguments I called for Euro recovery up to 1.1020, which got extended by another 2 Big Figure. But more importantly I said Euro will find sellers as downside break of parity (Euro/Dlr 1:1 is required for a test of 0.9775, which is intact.

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https://www.linkedin.com/pulse/euros-next-move-medium-term-direction-asad-rizvi?trk=mp-reader-card

EURO’s Next Move (Medium Term Direction)

March 16, EURO @ 1.0495 =

On March 5, in my note “Mario Draghi was Too Disappointing”. I gave reasons why Euro will hit 1.05 levels. (https://asadcmka.wordpress.com/2015/03/05/mario-draghi-was-too-disappointing/). My target was met with comfort.

Last week, after hitting 1.05 briefly US Dollar bounced back on weak retail sales data, which was no reason for change in thoughts. Market went back foot, as it became cautious on weak data suggesting that consumers are shying to spend. Yes, strong US Dollar may hurt US exporters. So it’s the trade data that will provide further direction.

Furthermore, it is encouraging for the US economy, as initial weekly claims dropped to 289.000 and was better by 36.000 suggesting labor market continues to flourish. US economy got further boost from improved Business Inventories.

Overall, change in US economic condition is visible. Job condition is improving at a fast pace and is soon likely to dip below 5 pct. Cheap oil is another huge factor that should help in pushing down the deficit number.

This week, quite a few important US economic data will be released. Though recently released US economic numbers have shown signs of weakness, but indications are clear that US jobs condition will remain strong and unemployment will continue to drop.

However, focus will be on FED meeting and more importantly on language. FED stance could be hawkish, but the pace of US Dollar gain combined with recent weakness and uneasiness in Euro-zone may force FED to re-think about the timing of rate hike, which could be delayed until 3rd or 4th quarter.

Last week, ECB launched its bond purchase program that has sent bond yield tumbling. Greece is still an unresolved issue. Portfolio shift to from Europe will do no good to the European currency, which will remain under pressure in Medium Term. Since Euro’s fall has been steep, there is a possibility of correction. But seller would likely to appear to pick the top, as Medium Term outlook for Euro remains bearish.

There is risk for bounce back from here, as Euro will be probing bottom. Strong support is at 1.0310, which should hold for 1.0780. Only break hear would encourage for extension of correction towards 1.1020. But any up-move will find sellers active, as downside break of parity (Euro/Dlr 1:1) is required for test of 0.9775.

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