EUR: Resilience Illusory? USD: Turning Point Ahead? - Credit Agricole

 EUR remains quite resilient despite lingering concerns about Greece. Such concerns seem to be keeping EZ stocks and peripheral bonds under pressure, however. The apparent decoupling could reflect the reduction of market longs in EZ assets and the subsequent unwinding of EUR-short hedges. EUR’s resilience may be illusory, however, and the risks for the currency remain on the downside in the presence of market fears about the future of Greece in the single currency area.

Next to Greece, the highlight of this week will be the advanced HICP print for April. The release could offer more evidence that the combination of EUR depreciation and stabilising global commodity prices helped ease further deflationary pressures. In turn, this could push EZ inflation expectations higher. While positive for EUR over the longer term, these developments could be overshadowed by lingering uncertainty about Greece for now.



The combination of still cautious Fed rhetoric and softer US economic data continue to undermine Fed tightening expectations and prevent USD appreciation. Weaker Q1 US GDP Wednesday will likely maintain this theme. Equally however, such data merely confirm what investors already know and with many already looking towards a stronger Q2 sentiment.

Wednesday’s data might mark a turning point for the recently ‘green’ USD. So far an anticipated rebound in Q2 growth has failed to transmit into prices with EUR/USD holding in a 1.05 – 1.09 range.

But with weekend news surrounding Greece doing little to lower risk aversion, it may not take much of a sentiment shift to cause a fresh run to USD and a test of the lower-bound of EUR/USD’s recent range.