EUR/JPY weakness well anticipated

A volatile last week with Greek debt talks and the Euro group meeting stole the limelight, with no progress reached on a Greece solution ahead of tomorrow’s repayment deadline to IMF. Greece and the Euro group Finance ministers had a fallout over Greek debt resolution for the third consecutivetime in a week. Further, the Greek parliament approved on Sunday Prime Minister Alexis Tsipras's proposed referendum on the bailout deal. Greeks will vote on Sunday, July 5 whether to accept or reject the latest offer by creditors to the Tsipras government aimed at unfreezing €7.2 billion in remaining bailout funds.

During the past week, we published two macro ideas, keeping in mind the ongoing Greek saga while a host of US macro events were also tracked for these reports. The first report was published on EUR/JPY under JPY Forecast and the second one on USD/JPY also under JPY Forecast. Both the ideasplayed out well.

EUR/JPY hits bulls-eye

The first macro report titled “JPY Forecast” was published on June 23.The EUR/JPY cross played out bang on target and the yen cross printed lows of 138.16 on the same day itself after the US dollar rebounded sharply following mixed US economic data, with US new home sales numbers the main market mover. Newhome sales increased 2.2% over the month to an annual rate of 546,000, the Commerce Department said Tuesday. That marked the best month of sales since February 2008, and it followed an 8.1% surge in sales in April.

Later on Thursday, EUR/JPY eventually breached 138 handle and dropped to fresh three-week lows at 137.61 as the greenback continue to receive support from US fundamentals while the weakening European currency on Greek uncertainty continue to boost the USD bulls.

USD/JPY tested 124 barrier

The second report titled “JPY Forecast” was published on June 25. This idea worked well to a great extent. The underlying idea of a USD/JPY rebound towards 124 levels and beyond was a success as the major bounced-off lows at 123.20 levels and swung back higher to 123.99, almost kissing 124 barrier, despite a touch better than estimates Japan’s inflation figures. However, further upside was capped on increased safe-haven bids for yen amid faltering Greek talks at the Euro group meetings.

Japan's national core CPI rose 0.1% y/y in May, according to the Statistics Bureau, easing from 0.3% in the previous month, but coming in slightly stronger than the market forecast of no change in the price index. Tokyo's more timely CPI gauge rose 0.1% in June, as forecast, after rising 0.2% in May.

Week Ahead:

After tomorrow’s Greek repayment deadline to IMF, the attention will slowly shift to US data this week, with ADP jobs numbers and most importantly, non-farm payrolls due, with payrolls being released on Thursday as the US will celebrate Independence Day on Friday. While ECB Monetary policy minutes, and manufacturing and construction PMIs from the UK will also be closely watched.