Euro volatility ahead

The overnight session has seen a further recovery in the Aussie, thanks largely to the better than expected GDP data seen for the first quarter at 0.9% QoQ. This comes after the steadier outlook for rates from the RBA yesterday, allowing for a further recovery in the Aussie to the 0.78 level. The fact is that much of this growth in household spending was owing to a fall in household saving, so there may be some doubts as to the sustainability of this pace of expansion. We also saw the latest slug of PMI data in China, where the HSBC services measure was firmer than expected at 53.9.

Once again the focus is on Greece, with the single currency performing well yesterday on the basis that the creditors were putting together a package for Greece to agree on this week to secure the next round of funding. On the face of it, this is not explicitly a “take it or leave it” deal, but given the deadlines involved, that’s effectively what it amounts to. The ECB meets today and this will also catch the attention of the single currency. No changes on the policy front expected, but questions surrounding Greece and in particular the ECB’s increased ELA lending to Greek banks. The recent move higher in bond yields (especially in Germany) also likely to be a focus, more specifically whether this is a sign that QE is working and yields are reflecting a better outlook for the Eurozone economy. Overall this is likely to be a choppy day for the single currency.

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