Looking for USD strength into US data release

The Day So Far

Greece continued to determine investor sentiment this morning, although market participants finally had some positive news to focus on, as a leaked letter from Tsipras to the creditors revealed that, finally, perhaps the Greek government is ready to accept the offer on the table. The letter, which was seen by the Financial Times, indicated that the Greeks are prepared to make key concessions regarding pension reforms and the retirement age. The immediate response across markets was predictably positive, particularly in European equities, the Dax leaping almost 300 points from the morning lows and Stoxx back above 35000. In fixed income, t notes and the German Bund were sold off strongly on the news, while the euro traded lower on the back of the equity strength and the largely inline European PMI releases earlier in the morning.

Where does this leave Greece now? The creditors will doubtless be formulating a response to the Greek offer, and Eurozone finance ministers are due to discuss it in a conference call at 16:30 BST. It remains to be seen whether there exists the political will among the creditors to pull Greece back from the brink following months of fruitless talks and subsequently, mutual distrust, between the two sides. German finance minister Schauble has already poured cold water on some of the early optimism, saying that the letter provided ‘no basis’ for serious talks. So, although this is a positive step, there is a way to go before an agreement can be reached, and as things stand the Greek referendum on the creditors’ original proposal is set to go ahead.

The Afternoon View

This afternoon provides some interesting data points to distract markets from the Greek headlines, with the ADP employment report shedding light on the recent health of the US labour market. Then follows the US Manufacturing PMI and Construction Spending, and finally the ISM Manufacturing. We are looking for dollar strength on the back of strong US data, but are short t notes and long equities on the improving situation regarding the Greek talks. Not to be forgotten is the DoE release at 15:30 BST, with another drawdown expected. Trading crude on the release has been complicated to say the least, with the market selling off after strong data having already priced it in following the API release the night before. In this instance, crude has traded lower this morning, with the API release yesterday showing another drawdown, albeit smaller than recently, and crude has sold off in conjunction with the euro. We maintain our short bias for crude today, believing that we are ready for another bout of dollar strength in coming weeks.