The news flow from Greece has been driving the market action for the past 8 trading session and the currency traders have been trading the euro in a very narrow range. Investors do think that Greece will end up staying within the eurozone and this could be a positive news for the currency which could see a pop towards the upside. However, what if the eurozone leaders do decide to remove the weakest link from their chain, could this be a positive news for the euro? Well the theoretical answer is that when you do remove the weakest link in a chain, it does become much more stronger. Having said that, if the same concept could be true for the euro, perhaps no, because the speculators are going to use this as an excuse and could start drawing the blood out of this wound by saying that the single currency is irreversible. Therefore, we will have a real problem.
So far we have received no concrete news about establishing a common ground between Greece and its creditors. Although Greece is ready to ask for extension today from the EU and if their request is given the green light, this could push the euro higher. Given that the ECB has promised yesterday that they are willing to extend the emergency funding for another two weeks, we think a positive outcome could be on the cards from the EU officials as well and traders will love this news. The Euro could see some upwards momentum for the EUR/USD pair and we could be moving towards the level of 1.17.
Back in the US, the Federal reserve statement released yesterday dampen the strong dollar rally as the minutes were more focused towards the fragile issues which the U.S. is facing. You cannot blame the Fed, they have made this very clear from day one that rate hike could only be possible if the economic data is strong enough and there are some elements which is keeping the hand cuffs on. Although, the labour market is extremely robust, but the GDP data is not good at all and this is a concern. The dollar strength which is mainly due to the weakness of other currencies, is becoming a major challenge when you look at the earnings.
So overall, the Fed minute released yesterday were dovish and traders will be focusing towards the Janet Yellen speech more in the coming days. They also kept the word patient in their statement and this also perceived as a very dovish move by investors.