Last Friday (14/8), EUR/USD continued to decline. Ending the session, the price closed at $1.1093, down 0.35% to compared with the opening price ($1.11482).
Developments surrounding the Greek debt talks continued to impact on the euro. Euro zone finance ministers have agreed to lend Greece up to 86 billion euros ($96 billion) after Greek lawmakers accepted their stiff conditions. Greece appears to have been saved and will avoid defaults. The passed third bailout may reduce volatility in the Euro zone, thereby supporting the euro. The pair climbed to a high at $1.11877 in the session.
One remaining uncertainty – aside from Tsipras’ ability to deliver sweeping budget cuts and privatizations opposed by many of his own party – is the role of the International Monetary Fund (IMF). After backing two previous bailouts, the IMF renewed its call for the Europeans to grant Athens debt relief – a bone of contention between the Eurogroup and the Washington-based Fund.
Yesterday, German Chancellor Angela Merkel tried to reassure skeptical lawmakers on Sunday that the International Monetary Fund would take part in a new bailout for Greece, before a parliamentary vote in which many of her conservatives may break ranks and reject the rescue.
In her first public comments since her summer break, Merkel told broadcaster ZDF that she was sure Christine Lagarde, head of the IMF, would ensure the participation of the fund if conditions on Greek pension reform and debt relief were met.
German approval of the bailout is not in doubt because of the support of parties like the Social Democrats and Greens. But a rebellion by a large number of her allies would be a blow for Merkel.
According to the European Union’s statistics on Friday, the euro zone economy grew by less than expected in the second quarter. Eurostat said gross domestic product in the 19-country euro area grew by 0.3 percent quarter-on-quarter in the April-June period, for a 1.2 percent year-on-year rise. Economists polled by Reuters had expected a 0.4 percent quarterly expansion and a 1.3 percent annual gain. The economy grew lower, despite the efforts of ECB with QE.
Greece situation and poor prospects of the Euro zone’s growth causing pressure on the euro. The good news from Greece could support the euro, however in the long term, EUR/USD remains pressured downward by the difference in monetary policy between the two central banks. While the U.S. Federal Reserve expresses the confidence in the strong recovery of the economy, boosting the prospects of rate hike in the year, the European Central Bank (ECB) maintains stimulus program (QE) until September 2016.
This week, the pair will be affected by the FOMC meeting minutes released on early Thurday (20/8). Investors will be looking for clues on the timing of Fed’s rate hikes. The prospects of Fed’s raising interest rates support the dollar, putting pressure on EUR/USD.
Currently, 2:20 p.m. GMT+7, EUR/USD is trading at $1.10729, down 0.38% compared with the opening price ($1.11148).
Forecast: EUR/USD still bearish. Most likely today the pair will continue to fall toward $1.01000.