FX markets subdued as politics takes centre stage

The UK election dominates GBP/USD thinking while the ability of Greece to meet its next deadline hangs over the eurozone.

Euro notes
Source: Bloomberg

EUR/USD further into overbought territory

The last 24 hours saw Greece meet its debt commitments and almost instantaneously the markets focused on the next deadline the country has to face on the 12 May. This looks like a template that will be set in stone for some time to come. Even without the confrontational presence of the Greek finance minister at the latest negotiations with the European Central Bank, European Union and International Monetary Fund, the lack of action in Greece is leaving all three far from convinced that the Syriza party has either the inclination or commitment to implement the changes needed to appease their austerity demands.

EUR/USD has moved even further into overbought territory and now sits at the $1.1360 region after yesterday’s squeeze. Part of this move can be attributed to the move in yields on euro-dominated sovereign debt. These levels mean that the currency pair is fast approaching levels last seen at the beginning of February where it may well come across some natural market resistance.

EUR/USD chart

Traders look to reduce exposure to GBP/USD

Considering how much the political landscape might change in the next 24 hours it is likely that the majority of today’s GBP/USD trading will be housekeeping as traders look to reduce exposure. The two major parties have very different tactics around the UK’s presence in the EU. The Conservative party, if elected, will look to hold a referendum asking whether we should stay in the EU, while the Labour party currently has no intention of raising this issue.

It is far from clear what the UK would decide if it was given the opportunity to choose but that in itself would be another dollop of uncertainty thrown into the currency markets. As the evening votes are counted we may be given a clearer picture of a likely outcome but FX traders in Asia will have the first opportunity to make that judgment.

GBP/USD chart

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