The Financial system as we know it may come to a change, as the whole world is looking at the Greek referendum that is taking place this weekend.
The Greeks were facing a tremendous financial crisis with the country under capital control for the whole of last week, and in order for you to understand the dimensions of the crisis, Greek citizens were allowed to withdraw only 60 Euros from ATM’s as simply; the country it is running out of cash.
The whole referendum is about a yes or no answer and Greeks should decide on acceptance on the previous negotiating deal the new government has on the table. If the outcome is “yes”, then the deal will be taken, if “no”, negotiations are still on the table.
A “yes” would send into Greece the much-needed money to pay salaries and pensions and would lift the capital control. However, there is one big unknown: no one really knows how markets will open on Monday despite the referendum’s outcome.
Besides the above, there are two other important things to consider these times and one is coming from China and the other one from the United States.
Chinese stocks are falling like a rock and as a consequence Australian dollar is hurting as more than 30% of Australian exports are going to China.
But more problematic seems to be the conflict that is about to break in the South China Sea as the Chinese are building an artificial airstrip in the middle of the sea that could accommodate almost all of their military aircraft.
The stake is huge as Japan and other regional countries there do not like this situation and therefore on an escalation the JPY may be on-demand.
From both the Greek and Chinese situation, I am favoring lower values for the USDJPY as a move below 120 should come sooner rather than later.
As for the United States, Federal Reserve, the central bank, still saying it is moving towards a gradual lift-off for the federal fund rate. Last Thursday’s job data may not warrant that yet, as both labor participation rate, as well as average income, fell, but if inflation picks up, Fed will have to speed the lifting process.
This should fuel the US dollar needs but again, markets then need to focus more on the short-term picture and horizon rather than on the medium to long term. The short term means Greece and its problems.
Because of that, it is highly desirable to avoid trading Euro related pairs until next week opens as the risk is simply too big.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
