The euro exchange rate complex (EUR) has recovered from the initial sell-off witnessed in the wake of the Greek election results.
The euro had tested an eleven year low against the US dollar but now is back up to 1.1392.
The pound to euro exchange rate is meanwhile just off 7 year lows being quoted at 1.3350.
Is the Euro Oversold?
Lloyds Bank reckon the prospect of a euro relief rally could well occur in the current technically oversold environment:
"Sound bites will dominate near term price swings in FX markets today, potentially from Italy and Spain too. Interestingly, from a market perspective the failure in new lows ahead of 1.10 support is the first sign of “sell the rumour, buy the fact”.
"The core trend is intact having seen important supports at 1.12 in EUR$ and 0.7575/50 in EURGBP break last week, but near term a move through 1.1285 has the potential for seeing a further run towards trend resistance at 1.1400-1.475, but limited to there.
"In EURGBP .7515/20 is the pivot ahead of trend resistance in the .7575/.7650 region, while main support lies at .7235/.7200."
Citibank remind us that any bounce in the EUR should be regarded as a selling opportunity:
"Worth highlighting the next short-term resistance level on EURUSD is at 1.1289. IF that level were to give way, which is not clear it will, it would confirm a short-term double bottom on the hourly charts which would target around 1.1460 (this was also the post-SNB surprise low). IF that were to develop, would have to think that is as good a sell zone as you’re going to get. Some big IFs before that though."
Greece Firmly Back on the Agenda
"In an unsurprising result, the left-wing Syriza party won the Greek elections. The leader, Alexis Tsipras, has vowed to end Greece’s “five years of humiliation and pain” whilst leaders worldwide have expressed apprehension about what this means for the Eurozone. Since joining the Eurozone in 2001, Greece has seen crises after crises, which have radiated throughout Euro-area countries," says Raphael Sonabend, FX Analyst at CaxtonFX.
With Syriza now in power, economists and politicians have raised concerns about the fresh crisis this could bring.
As Syriza previously stated that they want to take Greece out of the Eurozone, worries of a “Grexit” will be reignited.
Currency Analyst Responses to the Elections
Boris Schlossberg at BK Asset Management says:
"For now the market appears to have breathed a sigh of relief that Mr. Tsipras has not assumed a more confrontational posture. The EUR/USD has tested support at 1.1100 twice and may be in for a short covering bounce especially if fears about political tensions begin to recede while the economic situation stabilizes. If this scenario holds for the next several weeks today's price action may well represent a near term bottom in the pair."
Alan Wilde, Head of Fixed Income, Global at Baring Asset Management, said:
“The Greek result is a great paradox in the sense that we are told the Greek people are voting against austerity measures but wish to remain within the Eurozone. In the next few weeks ‘headline risk’ is going to be high as Syriza seek to re-negotiate bailout terms with the Troika.
"Germany has reiterated this morning that the Greek people have a legal contract with the Troika to receive more funds but if they break this and by implication seek to re-negotiate the terms of debt repayment, no more funds will be available in March and this will test the new Greek government’s resolve. Brinkmanship is the name of the game.”
Connor Campbell at Spreadex warns:
"Yet market jitters are beginning to appear here and there as the full implications of a Syriza victory hit home.
"The Eurozone is now in the precarious situation of facing down a new Greek government that is gunning for economic revolution, and with Alexis Tspiras expected to make clear his plans later today, the markets still may be in for a shock when the extent of Syriza’s desired reforms is revealed."
Ipek Ozkardeskaya at Swissquote Bank tells us:
"We see little chance for a Grexit. Tsipras will certainly renegotiate the Greek debt and the austerity measures before agreeing on the next aid package (deadline on Feb 28th), while keeping Greece in the Euro-zone. The political pressures should keep the Greek bonds tense over next weeks, while the Greek debt should become eligible for the ECB QE by July 2015."