As has become usual recently, the week has kicked off with substantial volatility in EUR after dramatic turns in the Greek saga over the weekend. This time the end appears near after an overnight 17 hour Eurogroup meeting culminated in a provisional agreement between Greece and their creditors early on in the European session. This provisional agreement has been the main focus of the day with EUR/USD seeing an immediate uptick but failing to break above 1.1200 before then trending lower to end the session down by over 100 pips. Some desks have attributed the weakness to the obstacles still to come, with a Greek parliamentary vote on the deal still ahead and then separately a vote from German, Austrian, Dutch, Estonian, Slovakian and Finnish parliaments.
Others, including the FT, note that some trades had been looking to sell EUR heading into the rally. While elsewhere, other desks suggested that now a Greek deal is in place, attention now returns to Fed lift-off with Yellen stating on Friday saying the FOMC remain on track to hike rates at some point in 2015. Another touted reason is a similar move to that seen on June 23rd, where on a purely technical level negative, rates have led to carry trades (borrowing to fund leveraged bets elsewhere). So when markets have assimilated bad news over the last few weeks EUR moves higher as traders cut their exposure and cover the carry trade loans (i.e. buying EUR) and good news actually means traders can borrow more EUR for more carry trades which pushes EUR lower.
JPY initially saw safe haven bids following the ongoing Greek impasse however, pared its earlier strength amid short covering in USD/JPY to break above its 50 DMA. This combined with EUR weakness to filter through the USD, with the USD ending the session firmly in the green.
Meanwhile commodity currencies such as AUD and CAD have seen weakness today amid a move lower in both precious metals and energy, the former seeing an unwind of safe haven bids and the latter lower in anticipation of an Iran nuclear deal. As well as commodity weakness, CAD is also weaker ahead of Wednesday’s BoC rate decision, where they are expected to cut their interest rate by 25bps.
Looking ahead, tomorrow also sees UK and German CPI, German ZEW Survey Expectations, Eurozone Industrial Production, US Retail Sales and comments from ECB’s Mersch and Constancio.