Good morning. The big story this Thursday morning remains the on-going Greek situation. For much of Wednesday, Greek PM Tsipras was in meetings with the heads of the European Commission, the International Monetary Fund, the European Central Bank and other various EU ministers. Despite no
agreement, the EURUSD rate rose throughout the North American session as markets remain optimistic a deal will be struck. As we go to print this morning, the most important impasse remains between the IMF and Greece, which cannot find any common ground. As we move closer to Tuesday’s deadline, it will be interesting to see the tug-of-war in FX markets as an default could trigger a bank run, capital controls and possible an eventual Greek exit from the euro zone.
Economic data was very limited during Asian hours as all eyes remain pinned to Greek developments. Equity markets are most negative as Asia markets wrapped up as Greek leaders cry blackmail. While both sides continue to trade proposals, the rhetoric is building up again as members of Greece’s far-left decline any offers including VAT hikes and an increase to the retirement age. Greece is due to repay the IMF €1.6 billion on Tuesday, and any debt deal must be drafted into legislation and passed through Parliament. Tension is building throughout the markets and it feels as if every currency
pair in the world hangs in wait. One currency pair to keep an eye on is EURJPY. During the good old days of carry, EURJPY was forever the bellwether of risk and if we see a significant push lower, that could tell the story on the realities of the market as other safe havens as the franc and dollar rise. Like other majors, with a lack of news to cling to, its Greece all day, every day.
Turning towards North America, economic data comes in the form of US weekly jobless claims and personal income and spending at 8:30am EST. As indicated previously, it’s been an up and down week for the greenback, experiencing a nice bounce on Monday as treasury yields ticked up on the news of a perceived breakthrough in Greece. While both sides continue to negotiate, many believe an agreement will be met prior to next Tuesday’s deadline. Stronger housing data supported Fed member Jerome Powell’s comments on Tuesday that not only could a September hike be in the cards, but another in December is possible. On Wednesday, it was reported that the US economy did in fact contract -0.2% but less than previously estimated -0.7%. This anticipated news could not lift the dollar. The US has been on the upswing in Q2 and many remain optimistic looking toward the second half of 2015, recovering from a period of bad weather and an unusually strong dollar. We will get a better indication on how things stand next Thursday when June non-farm payrolls are divulged, the
market is expecting 280,000 new positions created in June.
The Canadian dollar experienced a sharp decline during early morning trading on Wednesday. While the loonie had been supported on recovering oil prices through midweek, USDCAD had a sharp bounce and could drift higher toward rates not seen since the early days of June. With month and quarter end looming on Tuesday, we are expecting to see some interesting moves as institutional rebalancing generally plays an important role from quarter to quarter. Next week, economic data out of Canada is limited with May PPI (Monday) and Manufacturing PMI (Thursday) the headlines. For the moment, the risk is for USDCAD to continue to edge higher as the US dollar rises in the short term.
Further reading:
EUR/USD falls and rises on conflicting reports about a Greek deal
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