The latest talks between Greece and its creditors yielded no new clarity, with more talks now set for Saturday which German Chancellor Merkel said had “decisive importance”.
According to a Reuters article, the Saturday session will provide Greece with a chance to accept the latest deal or begin to discuss “Plan B”, which likely means measures aimed at keeping the Greek financial system intact with capital controls, etc.
The market is increasingly unwilling to trade on any of the news flow from Greece as it is entirely unclear whether the Greek side will yield at the last second or if it is willing to test the other side of an International Monetary Fund default.
Next week will be all about how the market reacts to the situation in Greece, as we have finally reached the point where real news arrives over the hard deadline of the IMF payment due on Tuesday.
That clarity may be available already Monday morning, based on whatever transpires at the negotiating table on Saturday, as discussed above. There is some chance (worst option from a trading perspective), that we get a one-month or three-month extension from creditors to allow for more talks, though at this point, the EU side in particular may be too exasperated with Greece to extend any such offer.
Today is likely to be a day of nerves and possibly risk-off ahead of this weekend’s uncertainty, which could keep the commodity currencies under pressure relative to the USD and the JPY.
Next week will be an important one for the US dollar as we have the key US employment report/change in nonfarm payrolls up on Thursday (due to the July 4 weekend starting Friday). The preliminary Jun. US Markit Services PMI released yesterday was a disappointment.
Chart: EURUSD
EURUSD has held its breath over the last three days as we await the outcome of Saturday’s negotiations between Greece and its creditors. We have the risk of a gap open on Monday morning depending on the outcome of those talks.
The technical picture is relatively bearish, though to get any follow through lower below the local 1.1150 support and the more structural 1.1000/50 area, we’ll need some support for the USD from the data next week, including Thursday’s US employment report (moved up due to Friday holiday).
The G-10 rundown:
USD: Looking relatively resilient at the moment, though it is clear from the rate picture for the US that we’ll need strong US data next week to justify a significant extension to the USD strength.
EUR: Traders entirely unwilling to take a stand at the moment until the news from the Greek negotiations becomes more definitive. With euro positioning now far lighter, the potential scenarios are perhaps far less euro-supportive than previously, and a deal might even allow EURUSD to sell off again.
JPY: Edging generally stronger, likely due to weak risk appetite. The latest inflation data gives little reason to expect that the BoJ will step down from its aggressive stance on policy and the household spending strength overnight is due to the basing effects of the sales tax hike in April of last year.
GBP: Surprisingly anonymous sterling, given the sharply higher UK yields at the short end of the curve, perhaps as weak risk appetite is stemming further gains for the moment.
CHF: SNB’s Jordan was out yesterday talking intervention and even more negative rates to counter the strong Swiss franc, which garnered only limited reaction due to the overhanging Greece issue, and also because Jordan stated the obvious, that there are no easy solutions for weakening the franc.
AUD: Softer this morning, perhaps on the latest steep plunge in Chinese equities. Still looking for a break lower in AUDUSD, but market unwilling to trade out of range lately.
NZD: Fresh attempts by the RBNZ overnight to talk down the kiwi, though these yielded little in AUDNZD terms, even if NZDUSD corrected a bit lower. Expecting continued weakness, though risks that AUDNZD consolidates for a while even if NZDUSD continues lower.
SEK: Traders struggling for a reason to even look at SEK at the moment with 9.17 and 9.25 as the local trigger areas.
NOK: Watching 8.70/65 in EURNOK for signs that the NOK can get the upper hand against the single currency.
Economic Data Highlights
- New Zealand May Trade Balance out at +350M vs. -100M expected and vs. +183M in Apr.
- Japan May Jobless Rate out unchanged at 3.3% as expected
- Japan May Overall Household Spending out at +4.8% YoY vs. +3.6% expected and vs. -1.3% YoY in Apr.
- Japan May National CPI ex Fresh Food and Energy out unchanged at +0.4% YoY as expected
Upcoming Economic Calendar Highlights (all times GMT)
- Sweden May Retail Sales (0730)
- US University of Michigan Sentiment (1400)