GBP/EUR 1.4020 (0.7122)
There was a notable pick up in tone through yesterday’s European session, news across the wires suggesting progress had been made towards a Greek deal buoyed risk appetite. European stocks were higher through the day while the EUR also rose in tandem. The 30th of June is the deadline by which Greece have to pay the IMF, if they do miss this it is not an out and out default, it does set the tone however and failure to get access to funds in the near term mean larger debts due by the end of summer will likely be unserviceable. While the news flow was somewhat more positive on Greece, there were still some dissenters and we will still have to progress forward in further meetings this week. We have learned in the past that the submission of proposals, even if they appear somewhat agreeable, does not mean a resolution to the situation. Interestingly the EUR surged initially, before dropping over 1% from the European close to this morning’s open (against GBP and USD). The dollar was stronger on the back of firm data from the US, US treasury yields rose and the greenback was an outperformer overnight.
The head of the IMF has stated Greece have 48 hours to hammer out the details of their latest proposals in order to get access to further funding, and prevent them sliding down the road towards all out default. Athens had submitted documents and new reforms over the weekend, although it appears they sent the wrong documents initially (for the second time). This error delayed its creditors access to proposals and meant there was not enough time to review, to get a final agreement in yesterday’s meeting – headlines suggest that the new reforms will look to raise money via new taxes and cost cutting exercises, with some “fine tuning” to the nations pension scheme. The reason for the positive headlines really however is that this appears to represent a step in the right direction, while it is clear from Greek creditors that the finer details still need to be ironed out and the proposals fully assessed. Negotiations will continue through the week, in the meantime the ECB has increased Emergency Liquidity Assistance to Greece but we will need to see a deal by the end of the week. PMI data from the Eurozone headlines the economic calendar, but in reality will likely play second fiddle to the larger Greek story.
Existing US home sales rose 5.1% through May, the fastest pace since November 2009, and while US housing data has been extremely inconsistent to say the least, this is a huge step in the right direction and helped the USD advance through the day as US bond yields rose on expectations firmer data will support a September rate hike from the Fed. As we keep pointing out, US rate hikes will be data dependent, as US data improves so will the outlook for the US. There is a huge market that want to speculate on the timing of Fed rates hikes, this has resulted in a surging USD a number of times over the last two years only to see a pullback once the Fed push rate hikes out. The Greenback will be looking towards durable goods orders, new homes sales and PMI data this afternoon for USD strength to prevail, however durable goods have been mixed and due to have declined 1% through May, while new homes sales are expected to have risen 1.6% through May vs 6.8% in April.