The Greek deal is not a done deal until it is passed by the Greek parliament, which must take place on Wednesday according to the terms of the deal. It then must also pass parliamentary votes all across the EU, as, regardless of how bad the deal is for Greece, the rest of the EU will still have to cough up EUR 86 billion under the terms of this bailout.
And in the event that the deal is pushed through parliament in Greece, it looks like the Tsipras government will resign and pave the way for new elections later this year – meaning that the Greek story is far from finished. Under the terms of this bailout deal, the likelihood of a Grexit is stronger than ever on the grinding misery of austerity and indebtedness, though the time frame is highly uncertain.
Euro weak across the board
We’re pushing below 1.1000 this morning in EURUSD after yesterday’s bearish candlestick – if we’re below that level on the other side of the US Federal Reserve's chair Janet Yellen’s testimony, this argues for a move toward the sub-1.0500 lows and possibly beyond in the weeks ahead.
Dollar advances against the euro
Today, look out for CPI data from Sweden (SEK particularly reactive there, as another uptick in the June data after the surge in May could ease the loud drumbeat of aggressive dovishness from the Riksbank after its recent surprise rate cut and quantitative easing expansion). Still, SEK strength may only be felt in the likes of EURSEK.
Elsewhere, most of the anticipation is reserved for tomorrow, where we await not only the Greek parliamentary vote, but also Yellen’s testimony before Congress. She will likely want to “keep the options open” with no specific hints on rate hike timing besides “this year”, which she said last Friday.
Still, this is hawkish relative to where market expectations are at present, so we're generally looking for her testimony to prove USD supportive, as there is still room for a September move if the July and August data cycles show further improvement, and the market has almost entirely priced out the likelihood of a September move.
Also up tomorrow, we have a Bank of Canada meeting, where a slim majority of observers are actually looking for a cut – I lean toward no cut, but in any case, CAD will be rather reactive in the crosses either way.
G-10 rundown
USD – Turning stronger across the board and looking for it to stay that way, with a possible hiccup today if the retail sales number comes in weak. The bigger event risk is tomorrow’s Yellen testimony.
EUR – Weak across the board and looking for the single currency to stay that way if the Greek deal is rammed through in Greece and in the other EU parliaments later this week.
JPY – Weak, but not as weak as euro at the moment. Will the Bank of Japan have much to say tonight? Doesn’t seem to be much focus here, but a return of risk appetite and higher rates would generally argue for a weaker JPY.
GBP – Could be reactive to the downside, especially in GBPUSD, on a negative surprise in the CPI today, but still looking for EURGBP to continue lower and challenge the 0.7000 area again if 0.7060/50 is taken out in the days head.
CHF – Trading passively as EURCHF remains rangebound – but note USDCHF challenging the very critical 0.9500/25 zone this morning, which could finally unlock the key to a try toward parity in the weeks ahead if the USD is firing on all cylinders.
AUD – An uptick on the highest NAB Business Confidence number since late 2013. Note EURAUD, where 1.5000 appears to have been a bridge too far for the pair – could be an interesting alternative for shorting EUR, as renewed confidence may ease some of the pressure on the commodity currencies.
CAD – Still suffering under the pressure of weak oil prices and an Iran nuclear deal seems to be breaking just this morning – interesting to see USDCAD nearing the 1.2835 inflection point (multi-year high from earlier this year) as both Yellen is out speaking tomorrow and we have a Bank of Canada meeting. Firmly looking forward to a test of 1.3000 and beyond to the upside, though at some point, CAD underperformance should ease outside of USDCAD if the US economic data continues to come in stronger.
NZD – Rates at the short end of the curve have ticked up over the last 7-8 trading days as the currency, in broad terms, may have been excessively beaten down – GBPNZD and EURNZD might be candidates for consolidation if that is the case.
SEK – Today’s CPI helps determine whether the market can begin to sniff out the end of the Riksbank’s aggressive dovishness after a big surge in the May CPI number.
NOK – NOK trading on the weak side again this morning on the Iran deal, but beginning to see value in the longer term here versus EUR and SEK and looking for technical catalysts.
Economic data highlights
- UK Jun. BRC Sales Like-for-like out at +1.8% YoY vs. +0.5% expected and vs. 0.0% in May
- Australia Jun. NAB Business Conditions/Confidence out at 11/10 vs. 6/8 in May, respectively
- China Jun. Foreign Reserves dropped to $3690B vs. $3730B in March
Upcoming economic calendar
- Sweden Jun. CPI (0730)
- UK Jun. CPI (0830)
- Euro Zone May Industrial Production (0900)
- Germany Jul. ZEW Survey (0900)
- US Jun. Retail Sales (1230)
- Canada Jun. Teranet/National Bank Home Prices (1230)
- Eurozone ECB’s Mersch to Speak (1445)
- US Fed’s George to Speak (0015)
- Australia Jul. Westpac Consumer Confidence (0030)
- China Jun. Industrial Production/Retail Sales (0200)
- China Q2 GDP (0200)