Interpreting the strength of the euro as the Greek drama plays out is a difficult task for a number of reasons. Some would say that investors do not perceive Greece leaving the euro while others believe that they will vote yes on the July 5 referendum. Price volatility is bound to increase either way.
One also has to be very cautious about trading short term. The Greek situation is obviously something that captures headlines every single day but the contagion effect that we saw in 2011 and 2012, when there really was very dramatic spill over into other markets in the European zone, has to be kept in mind.
Something else Forex traders need to pay attention to is that, as the recent recovery of the euro on Monday and Tuesday shows, people are getting increasingly reluctant to trade the Euro based on headlines, which means that it is becoming less sensitive to being manipulated by the news.
More investors are thinking about the long-term situation and what it means for the global picture rather than trading headlines.
According to Goldman Sachs, the euro will be trading at $.95 to the dollar within a year. Whether this doomsday prediction will come true depends largely on how Greece handles the current situation, but regardless, Forex traders around the world will be watching keenly for an opportunity to make profits.