EUR/USD Falls on Greece Rejection of Bailout; New Proposals Coming

Two big stories hit over the week-end, Greece’s citizens rejected its international creditor’s terms and China took emergency action to support its stock markets. The results of Greece’s referendum could bring to an end its membership in the Euro Zone.

The EUR/USD plunged on the opening after reports surfaced that 61% of voters rejected the proposed bailout plan. The Forex pair did recover close to half of the break which suggests the move may have been an overreaction to the headline news. The price action is very similar to last Monday’s move when the Euro opened sharply lower, but then closed higher for the session.

The price action also suggests that new proposals may be coming. There are reports that Greek Prime Minister Alexis Tsipras and German Chancellor Anglea Merkel talked about this possibility. Tsipras is expected to make the new proposals when talks resume at a meeting in Brussels. Its creditors will be looking for proposals acceptable to both sides. Greece must prove to its creditors that it will make sincere and constructive attempts to reform its economy.

In the short-term, there is talk of providing humanitarian aid to Greece, but the main concern is keeping Greek banks in operation. This is likely to mean financial aid from the European Central Bank.

This week’s meetings in Brussels will be an attempt to close the wide gap between Greece and the other Euro Zone countries. Most want Greece to remain a member of the Euro Zone, and vice versa, but there are still some serious issues to overcome.

In other news affecting the Euro, the Sentix Investor Confidence Index posted a surprise jump to 18.5 versus estimates of 15.6. Last month, the reading was 17.1. German Factory Orders, however, fell 0.2%, missing the estimate, while coming in well below last month’s 2.2% reading.

The GBP/USD fell in sympathy with the Euro while gold futures fell after flight-to-safety buying drove up the U.S. Dollar.

The news from Greece and China helped drive crude oil prices down more than 3 percent. The uncertainty caused by Greece has traders wondering about future demand from Europe. China is in the middle of its slowest growth period in a generation, driving down a number of commodity markets. The turmoil in its stock market and the stronger dollar are also driving down commodity prices.

The recent rise in U.S. drilling rigs and the potential increase in Iranian oil supply is also contributing to the steep drop in oil prices. Reports show that U.S. drilling increased for the first time after 29 weeks of declines. Overproduction from OPEC is also a concern. The cartel is said to be producing about 2.5 million barrels per day more than demand.