Dollar in the driver's seat as focus turns to the eco data

On Thursday, the focus was on the US payrolls report and not on Greece like in previous days. The payrolls were OK, but not good enough to reinforce the recent USD positive sentiment. The USD-rally stalled, but the correction stayed limited. EUR/USD closed the session at 1.1084, from 1.1053. USD/JPY ended the day at 123.07 from 123.17.

This morning, Asian equities mostly trade mixed to moderate lower, with China still trading very volatile and currently substantially underperforming. The post-payrolls setback of the dollar, while contained, weighs on regional equities.
USD/JPY currently trades in the low 123 area, little changed from the close yesterday evening.. The China HSBC services PMI dropped substantially from 53.5 to 51.8, adding to the uncertainty. EUR/USD is little changed at 1.1090.

Global (currency) markets await the Greek referendum

Today, US markets are close due to a long weekend in observance of Independence Day. So, low liquidity trading can be expected, especially in the afternoon. In Europe, the final release of the EMU services/composite PMI and the May EMU retail sales will be published. We see a downward risk for the revision of the PMI, but upward risks for the retail sales. A setback in the services PMI would be a minor disappointment and a slight euro negative.

Of course, there will again be a lot of debate/headlines on the Greek referendum as the parties involved will still try to convince the voters. So, European markets, including EUR/USD might be haunted by comments and/or results from polls on the referendum. A priori, one would assume that uncertainty on Greece is intrinsically negative for the euro. However, recent price action shows that risk-off sentiment and lower core bond yields are often at least as negative from the dollar than for the euro. So, we prepare for a scenario of erratic directionless trading today. Low liquidity might amplify the swings. To be honest, we think that the context will still be complicated after the Greek referendum, whatever the outcome. Global investor cautiousness might be a slight negative for USD/JPY, especially as the global USD momentum turned less buoyant after the payrolls.

In a longer term perspective, EUR/USD still trades in the 1.0819/1.1467 consolidation 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 monetary and economic context. Even so, 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. A sell-on-upticks approach remains slightly preferred.
Uncertainty on Greece might continue to cause erratic swings.

Sterling holding in well-known territory.

Yesterday, trading in EUR/GBP was primarily driven by the global trading patterns in the euro and the dollar. Still the UK data had some impact. Sterling was slightly in the defensive early in the session. A disappointing Nationwide House price report maybe weighed, but this small sterling dip was reversed mid-morning as the UK construction PMI was very strong. However, the price swings both in EUR/GBP and cable were very much contained. Cable traded in the 1.5565 area just before the publication of the payrolls. The post-payrolls setback in the dollar pushed the pair to the 1.56 area. EUR/GBP held a range near 0.71.

Today, the UK services PMI will be published. The services PMI held up better compared to the manufacturing measure, even as the momentum eased, too.
For June, the UK services PMI is expected to rebound from 56.5 to 57.5. The consensus is quite optimistic. So, we don’t expect the report to provide a big support for sterling. On the other hand, sterling recently often had some safe haven ‘aureole’ when the dollar and the euro had both their ‘issues’. This might to some extent be the case today. We assume that the downside in sterling is well protected, both against the euro and the dollar.
We had a cautious sell-on-upticks approach and expected EUR/GBP to drift lower in the 0.7483/0.7014 range. Sterling momentum remains constructive, but we turned more cautious on sterling as EUR/GBP neared the range bottom. We keep the working hypothesis that high profile news is needed to push EUR/GBP sustainably below 0.70. The day-to-day EUR/GBP momentum turned neutral this week. We stay cautious as long as uncertainty on Greece persists.