Euro, Aussie Dollar May Rise as Yen Falls on Greece Funding Deal

The Euro and Australian Dollar may rise while then Japanese Yen falls if an accord between Greece manages to secure a bailout accord with its creditors.

Talking Points:

• Euro to Look Past CPI Data, Focus on Greece Debt Negotiations

• Greek Deal May Boost Aussie and NZ Dollar, Boost Japanese Yen

• Access Real-Time FX Markets Analysis with DailyFX on Demand

The preliminary set of March Eurozone CPI figures headlines the economic calendar in European hours. The benchmark year-on-year inflation rate is expected to register at 0.3 percent, rising for a second consecutive month. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook.

Rather, the spotlight is likely to remain on Greece. Athens submitted a list of proposed reforms on Friday. The markets now await the verdict on whether the “institutions” representing Greece’s creditors – the EU, the ECB and the IMF – will approve it and unlock the next round of bailout funding. Investors fear that if external funding is not secured, a cash crunch and subsequent default may lead to the country’s exit from the Eurozone.

On balance, both sides of the negotiation are interested in a deal. Prime Minister Alexis Tsipras and company surely realize that a disorderly redenomination will probably compound the country’s economic woes and cost them their jobs. Meanwhile, EU and IMF officials no doubt prefer to avoid a “Grexit” scenario for fear of the precedent it may set. On balance, this means that some kind of accommodation is more likely than not.

An accord that prevents a default and keeps Greece in the currency bloc is likely to prove supportive for the single currency. Follow-through may be somewhat limited however as on-going ECB QE casts a dark cloud over the near-term outlook. It may likewise boost overall risk appetite, sending the sentiment-geared Australian and New Zealand Dollars upward while punishing the safe-haven Japanese Yen. Needless to say, failing to reach a deal stands to produce the opposite response.