Greece’s bailout is inevitable, Sales tax hike decision awaited

Even though recent news suggests that the Eurozone is on the road to recovery it is still fragile. Greece is a great example of why the Eurozone is still a fragile economy. There is a high probability that Greece will need an additional bailout. Germany is the only country in the Eurozone that is keeping it buoyant. Next week additional data will be coming out for the German economy and the Eurozone which should provide further clarity in data if the recovery has gained some grip.

Meanwhile, talks are still taking place on whether Japan’s sales tax hike from 5% to 8% should be implemented next April. There are concerns that the recovery may be damaged by this tax hike as salaries are not increasing and thus we may see a cut in consumer expenditure. However, a sales tax is needed to sort out the vast amount of public debt that has been built up over the years. BoJ will be holding a meeting next week to decide whether a sales tax hike is needed next year. If the current economic growth slows and the tax hike is implemented next year then Kuroda is likely to increase easing as one of his options.

Guest post by Accendo Markets

The pair is currently in a sideways market. S1 is a strong floor for the pair and the pair had tested this level twice in April. However the pair then broke this level in June and then rebounded at our S2. S1 was then tested again at end of June. S2, as we can see, remains to be a strong floor for the pair.

R1 still remains to be a strong ceiling for the pair having been tested twice over the last few months; it has not broken this level since. We have identified our second resistance level as May’s highest highs.

Technical Mix: MACD (Moving Average Convergence-Divergence) and Moving Averages

• 200-day MA (blue line) is in an uptrend signalling that the pair has a lot of momentum. We notice that recently the 50-day MA (white line) has become a support for the pair

• MACD line is above the red signal line, and it is above zero. If this continues we could see a break of R1 and the pair returning to level of R2.

In the short term the pair is bearish. Japan is faring better than the Eurozone in the short-term and their aggressive monetary policy is helping them. The main concern for the Eurozone at the moment is Greece. If it needs a bailout then this will again hurt investment and consumer confidence on whether the Euro was a good idea. The only way the Eurozone can sustain this recovery is by political and structural reforms and this will greatly reduce the political uncertainty.

In the long term the pair is bullish. If the sales tax hike comes into place for Japan, BoJ may need to implement more easing. Easing should shed some value off the Yen. As for the Eurozone, it should have a sustainable recovery although Greece may still cause problems in the future.

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