USD to resume strength in coming weeks

The Day So Far

The much-anticipated Eurogroup meeting ended, as expected, without an agreement between Greece and her creditors. However, markets were buoyed by Donald Tusk, the president of the European Council, who called for an emergency meeting to take place on Monday. The hope now is that that will give all sides a chance to reflect on their respective stances before returning to the negotiating table next week. Whilst all the goings-on from the failed meeting have not been revealed, IMF Chief Lagarde’s remark following the meeting that, for a Greece deal to happen ‘there have to be adults in the room’ suggests the Greek proposals fell considerably short of expectations.

Equities rallied, led in this instance by US equities as investors continued to breathe a sigh of relief following the dovishness of the FOMC on Wednesday. This morning, European equities have been steadily moving higher, although bullish sentiment is likely capped by the ongoing Greek uncertainty.

Overnight, Chinese stocks continued to let off some steam, with the Shanghai Composite lower by 6.4% today and down 13.32% on the week, marking the worst week for Chinese equities since 2008.

The Afternoon View

There is nothing of note in this afternoon’s calendar , therefore investors are likely to focus on any comments/details in the aftermath of yesterday’s unsuccessful Eurogroup meeting. We are bullish equities, respecting the strength witnessed over the past couple of sessions in spite of the not inconsiderable headline risks permeating markets currently. The euro’s reaction to the US CPI data yesterday was revealing; we had a spike lower in the dollar which was immediately retraced and the dollar actually strengthened thereafter. This suggests to me that perhaps the counter-rally versus the dollar seen in Q2 is coming to an end and dollar strength should resume in coming weeks, particularly if the Greece negotiations are unsuccessful and a messy ‘Grexit’ ensues. The US economy is looking stronger, the labour market is in rude health and the Fed still remains the central bank most likely to raise rates first, in spite of Yellen’s typically dovish, non-committal performance on Wednesday.