Focus of the day:
"Better-than-expected data and Fed Chair Yellen’s recent confirmation of a likely 2015 lift-off have supported the recent rebound in the USD. Data this week should maintain this momentum.
The Fed’s Beige Book (Wednesday) will likely underscore recent USD strength by describing an improving US economy after weather-related Q1 weakness. This should also be supported by Friday’s US labour market report, where we forecast a further 225k gain in headline NFP (consensus: 228k) and another drop in the unemployment rate to 5.3% (consensus: 5.4%). We continue to think USD strength will be underpinned by an economy that is most capable of generating inflation and the closest to rate hikes.
All eyes will stay on Greece in the coming week with the first June payment to the IMF (c.€300mn) due on Friday. Recent headlines have been somewhat conflicting, with sources suggesting that the IMF offered Greece a delay to pay the EUR1.6bn it owes in June, with the possibility to make all payments at once at the end of the month. Even if the 5 June payment is made, we continue to highlight the large divergence in views between the two parties, which should continue to weigh on the EUR, in our view.
Other than Greek political developments, the highlight will likely be Wednesday’s ECB policy meeting and subsequent press conference. In the context of mandate-inconsistent levels of current inflation and inflation expectations, we expect the ECB to reiterate its commitment to its PSPP purchases. Nonetheless, we think the market may have misinterpreted the ECB’s recent statement regarding the frontloading of its asset purchases. We expect President Draghi to clarify this during the press conference, noting that the decision was made on the basis of seasonal liquidity considerations rather than the recent increase in bond yields.
While this may provide upside pressure to the EUR, any strength is unlikely to persist, and we recommend selling EURUSD on any upticks."
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