As Greece readies for an election, disputed reports of the country’s exit from the EU cause the euro to slide.
Effects of the strengthening dollar and disputed news of Greece’s exit from the Eurozone have caused the EURUSD to slide to low levels. The currency pair closed on Friday at 1.1920 and opened today at 1.1940 only to drop to 1.1905. It rebounded but the downward trend is apparent as today recorded lows last seen in 2010.
The two major political issues affecting the currency pair are the troubles in the Eurozone and the divergence of monetary policies between the Europe and the States.
Today saw headlines reporting an article in popular German magazine Der Spiegel, citing unknown sources to claim that Germany was readying itself for Greece’s exit from the Eurozone. After backing Greece’s bailout plan, a programme that has totaled €240bn of European and foreign investment, Germany has insisted “that Greece will continue to meet its obligations”, thereby reputing the article. However, Greece will go to the polls this month, on the 25 January, to vote in a new government and with the population having suffered from austerity measures for years, it seems that the anti-bailout party of Syriza could find grounds for power.
Syriza party leader, 40 year old Alexis Tsipras, said in his latest speech that ‘his Syriza party would ensure much of Greece's debt was written off as part of a renegotiation of its international bailout deal,’ as reported by Reuters. He stated, "Quantitative easing by the ECB with direct purchases of government bonds must include Greece." And though Tsipras’ party is anti-austerity, this statement seems to portray Syriza as wanting to keep the door open to EU and ECB negotiation.
However, if Greece were to exit the European Union, the impact it would make is also being discussed. Bloomberg reported Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, to say, “Many European officials believe a Greek exit would be manageable, and in contrast to 2010-2011, we wouldn’t see the same cascading effect on countries like Spain or Ireland.”
The Greece20 Index opened at 259.75 and dropped to 246.75, continuing its downward trend from July 2014 levels of 393.38.
In the meantime, the ECB are continuing with Eurozone quantitative easing with plans for sovereign bonds purchase coming into effect possibly as soon as January. As opposed to the US FED, which has now finished with QE, the EU is still sitting on a balance sheet that it hopes to improve to 1 trillion euros this year. This divergence of policies is adding to the polarization of the two currencies as the euro weakens on EU problems and the US dollar gains strength on economic growth.
MT4 chart: EURUSD hourly
MT4 chart: Greece20 daily
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