Euro Stronger Ahead Of ECB Meeting And Greek Talks

The euro held on to Tuesday’s gains this morning as it continued to benefit from stronger-than-expected flash CPI data. Eurozone inflation rose by 0.3% annually, against expectations of 0.2% in May’s flash estimate. This pushed up Eurozone bond yields, with German 10-Year bund yields rising 13 bps to 0.664%, giving further boost to the euro.

News that Greece’s creditors had agreed on a bailout offer to present to Greece also gave some positive momentum to the euro. European leaders have intensified efforts to reach a deal with the Greek government as the end of June is now being increasingly seen as a crunch point where Greece needs to make a total of 1.6 billion euros of debt repayment to the IMF. German and French leaders have been holding talks with the IMF, the European Commission and the European Central Bank to resolve differences on the terms of a bailout offer to be presented to Greece. Athens still needs to accept any new offer but markets are optimistic that a deal will be agreed soon.

The euro was able to hold on to the 1.11 level in Asian trading, and was slightly higher at 1.1175. It was also firmer against both the yen and pound at 138.52 and 0.7276 respectively. The dollar dropped further from Monday’s highs against the yen, falling to 123.94, and lost ground against the pound too, falling to 1.5361.

The Australian dollar was given a boost from stronger-than-expected GDP data as this lessens the prospects of further rate cuts in the near future. First quarter GDP figures out this morning showed that the Australian economy expanded by 0.9% between January and March, from the previous quarter. This was much stronger than estimates of a 0.7% growth. The aussie jumped against the dollar after the data, climbing to 0.7808 in Asian session.

The remainder of the day is looking to be relatively busy. Final Eurozone Services PMIs for May are expected during the European session, although they are unlikely to deviate much from the flash estimates, according to economists’ forecasts. UK Services PMI will also be released. Retail sales for the Eurozone for April will come out, followed by the crucial ECB decision and subsequent press conference by Mario Draghi. The ECB’s take on the state of negotiations between Greece and its creditors as well as the assessment of how effective QE has been so far, will be watched. From the United States, the ADP private sector payrolls number for May, April trade balance and Markit Final services and ISM non-manufacturing PMIs should keep traders busy in during the early US session. Finally, the Beige Book survey of US economic conditions will be released in the latter half of the US session.