Greece still expected to outweigh eco data

Euro remarkably resilient

On Monday, the fallout from the Greek crisis dominated global trading..
EUR/USD dropped temporary below the 1.10 area. EUR/JPY and USD/JPY were also affected by a classical risk-off trade. Still, the moves in the major currency cross rates were moderate in a daily perspective. After the initial spike lower, the euro soon found a new short-term equilibrium in the 1.11 area. USD/JPY settled in the high 122 area. Later in the session, EUR/USD even regained the 1.12 barrier. An acceleration of the sell-off in US equities and declining interest rate support weighted on the dollar. An expected restructuring on $72B of Puerto Rican debt might have been a negative for US markets and for the dollar.

This morning, Asian markets showed a mixed picture, but most equity indices recouped early losses and currently trade with decent gains. The yen continues to trade relatively strong, even as sentiment on risk improves. USD/JPY is drifting back lower in the 122 big figure. The 122.03/11 support area is coming within reach. EUR/USD is trading in the 1.1190 area. The pair is off yesterday’s top in the 1.1275/80 area, but still trades above Friday’s closing level.

Greece still expected to outweigh eco data

Today, there will still be a lot of market talk on Greece after yesterday’s harsh talk from Greek PM Tsipras and as Greece is largely expected not to repay the €1.6B IMF loan. From a market point of view, this is no real news. At the same time we keep an eye at the ECB. Will the non-payment change the ECB ELA assessment or will the ECB keep the status quo going into the referendum? The latter is the most likely scenario, but an unexpected change in the ECB ELA assessment might cause a new risk-off wave, probably with negative consequences for the euro. Aside from Greece, the data might get some attention, too. The EMU inflation is expected at 0.2% Y/Y, but after yesterday’s German data the risks are on the downside. In the US, the CS house prices, the Chicago PMI and consumer confidence are scheduled for release. We see upside risks to the consensus for the US data. The question is whether this will be enough to give the dollar interest rate support in a global risk-off context.

Last week, the global picture on the dollar improved. Yesterday, currency trading was driven by Greece/the euro side of the story. However, the negative impact of Greece on the euro evaporated soon.

This suggests that the market was still too much USD long/too much euro short going into the next phase of the Greek debt crisis. Unwinding of all kinds of euro funded carry trades plays a role too. Last but not least, interest rate differentials often move in the disadvantage of the dollar in case of a global risk trade, as there is more ‘room to decline’ for higher US bond yields. The combination of those factors caused the ‘strange’ euro reactions as we saw yesterday. This context will probably stay more or less the same going into the Greek referendum. So, more erratic trading can be expected. As was the case of late, the binary, highly uncertain outcome of the Greek debt saga will make it still very difficult for investors to place outright directional bets.

In a longer term persp ective, EUR/USD still trades in the 1.0819/1.1467 consolidation range. Recently, EUR/USD traded in the upper part of this trading range. We maintained a cautious sell on upticks approach for return action lower in this range as we don’t see a real change in the global picture even as we are well aware of the risks. The 1.1534 February correction top remains our line in the sand to maintain a USD positive bias MT term. After the recent moves, this area now looks better protected. On the downside, the 1.0819 level (27 May low) is the first high profile reference . A break below that level would open the door for a retest of the 1.0521/1.0458 area. Trading will probably remain erratic. A sell-on-upticks approach remains slightly preferred.

EUR/GBP test of 0.70 rejected

Yesterday, EUR/GBP largely copied the price pattern of EUR/USD. A brief dip below 0.70 was forcefully reversed later in the session. The pair closed the session at 0.7140. Cable traded with a cautiously positive bias as the dollar wasn’t in really good shape either.

This morning, UK consumer confidence rose much more than expected from 1 to 7 (2 was expected). For now, the reaction of sterling is limited. EUR/GBP and cable continue to follow the global price trends in the euro and the dollar. Later today, the final UK Q1 GDP will be published. We don’t expect an impact on sterling. Global trends will continue to set to tone for sterling trading. Of late, we had a cautious sell-on-upticks approach and expected EUR/GBP to drift lower in the 0.7483/0.7014 trading range. Sterling momentum remained constructive, but we turned more cautious on the sterling rally towards the end of last week as EUR/GBP moved to the lower part of the established trading range. We kept the hypothesis that high profile news is needed to push EUR/GBP sustainably below 0.70. Of course, recent developments in Greece might turn out to be such an high profile event. The day-to-day momentum remains EUR/GBP negative, but we remain cautious as long as uncertainty on Greece persists.