Top Stories
- Lack of progress on Greece spurs unwind of risk
- German PPI cool at 0.0%% vs. 0.2%
- Nikkei flat at 0.03% Europe lower at 0.88%
- Oil at $91.53/bbl
- Gold $1537/oz. last
Overnight Eco
- JPY Merchandise Trade Balance Total (Yen) (MAY) 0.47T vs. 0.54T
- NZD Manufacturing Activity (1Q) 2.9% vs. 3.0%
- EUR German Producer Prices (MoM) (MAY) 0.0% vs. 0.2%
- GBP Rightmove House Prices (MoM) (JUN) 0.6% vs 1.3%
Event Risk on Tap
Price Action
- USD/JPY back to 80.00 as risk unwinds
- AUD/USD tests support at 1.0500
- GBP/USD performs best rising to 1.6250 on Rightmove data
- EUR/USD under pressure as 1.4200 tested on lack of progress with Greece
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Lack of any meaningful progress on the resolution of the Greek crisis frustrated and disappointed investors on the first trading day of the week, sending EUR/USD lower by 100 points as the pair tumbled back towards the 1.4200 level in early morning European dealing. The European finance ministers said that they narrowed their differences on the issue, but have yet to agree on a comprehensive approach to getting creditors to participate in the voluntary rollover of debt in order to avoid triggering default. Meanwhile in Greece the confidence vote for Prime Minister George Papandreou’s government has been delayed until Tuesday as the Parliament debates the proposed austerity measures.
The failure to progress on every policy front and the overall lack of clarity has put fresh selling pressure on the EUR/USD as concerns mount that the European authorities will be unable to resolve the issue of Greek debt before the rollover deadline in mid July. As the political negotiations continue the prospect of further downgrades for other European periphery debt has also put market on edge. Late last Friday Moody’s placed Italy’s Aa2 rating on review saying structural weaknesses such as a rigid labor market pose a challenge to growth. The
EUR/USD also failed to get any lift from economic data as the German PPI printed cooler than expected at 0.0% versus 0.2% eyed. On a year over year basis factory gate prices rose 6.1% but the vast majority of the rise was due to soaring energy prices. With oil prices now below $100/bbl the prospect of further upside price pressures seems unlikely and that in turn could make ECB less aggressive in tightening monetary policy going forward. Although most market participants still anticipate a 25bp rate hike in July, the chance of any further rate increases for the rest of the year is quickly diminishing as both energy cost and global demand appear to be cooling in H2 of 2011.
Although the focus remains squarely on the developments in Greece, the longer term direction of the EUR/USD may be driven by the eco data from the region coming at the end of this week. With flash PMI readings for June due this Thursday and the IFO report due on Friday, attention may turn to economic growth rather than credit risk as the week proceeds. If the data from the EZ shows material deterioration in economic activity, the EUR/USD decline may accelerate irrespective of the resolution of the Greek crisis.
With no eco data on the US calendar today trading will be driven by events in Europe. For the time being the EUR/USD continues to hold the 1.4200 level as traders await news of a deal, but as the negotiations drag on this week without producing any definitive resolution to the crisis and the pair could tumble towards the 1.4000 figure as frustration and fear come to dominate market sentiment.
FX Upcoming
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