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Euro bulls attempting to fight back

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After the EURUSD collapsed to yet another 11-year low at 1.1097 following the outcome of the general election in Greece, the Euro bulls managed to recover lost ground against the USD on Monday with the pair advancing as high as 1.1290. Reports regarding the Syriza party wanting to renegotiate Greece’s bailout and reduce austerity reforms were expected, however investors took optimism from indications that a compromise over Greece’s bailout terms might be agreed. The new Prime Minister of Greece, Alexis Tsipras reduced investor panic when he indicated that he wanted to co-operate and negotiate around the Greece debt issue, which allowed the Euro to recover some significant recent losses against the USD.

Although all the main headlines are focusing on the political situation in Greece and the Euro is finding some confidence from the risks around political instability being reduced, few are expecting the pair to continue moving to the upside. Greece aside (which will continue to carry some political risk over the next few days) the fact remains that the European Central Bank (ECB) only introduced QE a few days ago, meaning the  divergence in monetary policy and economic sentiment between the ECB and Federal Reserve has probably stretched even further. For some time, positive news coming out of the EU economy has been minimal, which has resulted in complete one-way traffic on the EURUSD charts. If the FOMC statement this week again reiterates the Fed’s intention to raise rates this year, potential USD strength will put the Euro at risk.

The GBPUSD faces a potential downside risk later this morning when the UK’s GDP for the final quarter of 2014 is released. An annualised 2.8% is the current market expectation, which would also be a robust figure. However, the downside risk the pound faces is if the GDP data slips below forecasts. The GBP is currently carrying a negative sentiment, which is already reducing investor attraction and the GBPUSD falling below 1.50 (1.4951) late last week has proved this pair has yet to find a bottom. With the UK economy currently facing issues such as deflation risks and optimism for a UK interest rate rise during 2015 being completely swept away, UK GDP slipping under expectations could awaken the bears.

This didn’t really come as a major surprise to be honest but the price of Crude Oil fell to a new five-year low at $44.69 on Monday. The economic conditions remain so aggressively against the commodity with the over-powering supply and demand equation still firmly weighted in the bears’ corner. Issues such as a huge oversupply of a reported two million barrels a day in the markets alongside global economic recovery fears are not going to disappear overnight, which also means the oil markets are susceptible to heading towards new lows. The small bounce higher last week was only temporary, and led by hypotheticals such as central banks easing monetary policy further possibly increasing demand for commodity. Until increased demand for the huge supply surplus is being noticed regularly, the price of crude will struggle to stabilize anywhere.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

Follow Jameel on Twitter @Jameel_FXTM

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