Goldman Sachs on EUR/USD: In a special note to clients today

Good Morning,

-Euro trade on a bears mode as Greece became the first developed economy to default on a loan with the IMF.

- European leaders are waiting for signs that Greek Prime Minister Alexis Tsipras is ready to compromise as his country buckles under capital controls and fails to make its International Monetary Fund payment. With Greek society feeling the pain of rationed bank withdrawals and pensions, the government is looking for a way out of economic ruin after a bailout expired and the country joined delinquent Sudan and Zimbabwe in being in arrears to the global lender of last resort. An 11th-hour request for a new two-year rescue package to tide over a ravaged economy was sternly dismissed by German Chancellor Angela Merkel.

- French fin min Sapin says the goal is Greek accord before Sunday's referendum "if possible".

- European finance ministers will confer later today over Greek PM Tsipras' request for a new two-year loan to pay debts that amount to nearly 30 billion euros. But not many hopes for a deal.

- Business conditions in the Spanish manufacturing sector continued to improve mid - way through 2015. Although growth of output and new orders eased during June, employment and backlogs of work rose at faster rates as the strength of new order inflows tested manufacturers’ capacity. The rate of input cost inflation continued to accelerate, while firms raised their output prices for the second successive month.

- Goldman Sachs on EUR/USD: In a special note to clients today, Goldman Sachs weighted on EUR/USD puzzling price action in-reaction to the news of the Greek referendum. The following are the key points in GS' note along with its latest EUR/USD forecasts. "This week’s jump in the Euro on news of the Greek referendum made no sense to us. As always, there are competing ex post explanations for what happened, but we see two things at play," GS argues. "First, the market treated developments in Greece as a negative global growth shock, with rates markets pricing out hikes in those places seen as closest to lift-off. That penalized the US and the UK most of all and pushed rate differentials in favor of the Euro. We fail to see how mounting tensions around Greece do anything other than reinforce US outperformance over the Euro zone, i.e., we see this price action as a fade," GS clarifies. "Second, after years of cliff-hangers, the market continues to expect a deal at the last minute, including in the aftermath of the referendum announcement. As a result, few are willing to put on Euro downside, even as the odds of a deflationary shock to the Euro zone are rising," GS adds. "We continue to see mounting tensions over Greece as a catalyst for EUR/$ to go near parity, if contagion to other peripherals causes the ECB to accelerate QE," GS concludes. "We continue to forecast EUR/$ at 0.95 in 12 months," GS projects.

- Unexpectedly upbeat news from the Bank of Japan's latest survey of manufacturers which improved in the three months to June, supporting the bank's view that growth is gathering momentum.

- Mixed data from China where surveys showed sluggish factory activity but a pickup in service sector, a sign the transition to a more consumer-led economy remained on track.

- Massive downward revisions to oil output in Brazil and Iraq have increased the risks for oil markets of going from the current feast to famine within just a few years, leading to a price spike that would give a new boost to the U.S. shale industry. Brazil and Iraq had been expected to add over 2 million barrels per day to global supply by 2020 and another 2.5 million by 2025, becoming the two biggest contributors to help meet rising global demand, according to the long-term forecast of the International Energy Agency.

Have a nice Day !