Syriza’s Tsipras will have to yield to austerity

<p>Greece’s Syriza party coalition with the anti-austerity Independent Greeks (ANEL) triggered rapid knee-jerk selling in the euro as the coalition represents a-harder line stance towards […]</p>

Greece’s Syriza party coalition with the anti-austerity Independent Greeks (ANEL) triggered rapid knee-jerk selling in the euro as the coalition represents a-harder line stance towards austerity than would have been under the anticipated coalition with To Potami.  Syriza won 149 seats in Sunday’s election— two short of obtaining outright majority, while securing power with the New Democracy, which shares Syriza’s stance of anti-austerity, debt write-off and favouring Greece to remaining in the Eurozone.  Euro selling grew gradually limited until completely reversed on the realization that Syriza’s extreme anti-austerity rhetoric will offset by Syriza’s failure to win outright majority, forcing it into a coalition and thereby increasing chances of dialogue with Troika.

Considering that Troika is willing to grant another extension to Greece’s bailout plan, and that even Alex Tsipras’ fervent supporters are aware that Greece must repay €4.3 billion in March, Syriza will have to play ball and “compromise” shall remain the name of the game. Another deadline debt extension is not the most economically viable solution for the 5-year old Greek problem, but it remains the most preferred means to stabilise increasingly frequent surges of volatility.

Dax30 best of both worlds

Traders continue to view Germany’s Dax-30 index as the preferred path within equities, with Germany’s investor and business sentiment surveys (IFO & ZEW) showing remarkable gains. Unlike its US, UK & Japanese counterparts, Germany’s DAX-30 index has hit new record highs over the last three weeks.

The Dax30 benefits from the best of both worlds: German economy and companies their Eurozone peers and; ii) Germany benefiting from the ECB’s historic stimulus. In comparing the DAX-30 performance relative to that of the Dow Jones Industrials Average, DAX30/DOW30 Ratio has fallen to its lowest since Dec 2010.

Fed meeting to start USD’s stumbles

Recent euro selling has been as intense as have its rebounds, suggesting that oversold positions may lead to a more violent snapback from the slightest of dovish of changes in Wednesday’s FOMC statement. There will be neither a post-FOMC press conference from Fed chair Yellen nor the quarterly economic projections from the Fed governors. A more forceful recognition of slowing inflation will be by far the most likely catalyst. We won’t be surprised if a reference to USD strength is added. Finally, as the latest snow storm in the North East of the USA looms large, economic forecasters will race ahead in reducing their projections for US consumer demand and job creation, which would speed up the rebound in GBPUSD and NZDUSD, especially if a dovish development takes place in the Fed statement.

Dow Dax Jul 26

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.