Talking Points:
- Yen Drops, Euro Gains as New Greece Debt Deal Hopes Boost Risk Appetite
- US Dollar May Rise if Yellen Comments Rekindle Fed Rate Hike Speculation
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The Japanese Yen underperformed in overnight trade as risk sentiment recovered, weighing on demand for the safety-linked currency. USDJPY tracked higher in near-perfect lockstep with a swift recovery in S&P 500 futures. Optimism appeared linked to renewed hopes for a deal to keep Greece in the Eurozone. Indeed, the Euro outpaced its top counterparts in Asia, adding as much as 0.8 percent on average.
Athens requested a new €53.5 billion bailout from the ESM rescue fund. Prime Minister Alexis Tsipras and company also submitted a set of proposed reforms that appeared similar to those previously championed by the country’s creditors. This fueled hopes that a last-ditch accord may yet emerge at an EU-wide summit on Sunday.
Looking ahead, the coast seems far from clear however. Greece’s Parliament will vote on the reform platform today, testing Mr Tsipras’ ability to sell domestically what may appear as capitulation to creditors’ demands. The Prime Minister successfully championed rejection of analogous bailout terms at a referendum just last weekend, putting in question his ability to pull off an about-face maneuver. Sentiment may swiftly unravel if his efforts falter.
Later in the day, the spotlight will turn to scheduled remarks from Federal Reserve Chair Janet Yellen. At their latest meeting in June, officials flattened their expected tightening trajectory (compared with the March assessment) but continued to call for two rate hikes in 2015. This stands in stark contrast with the markets’ priced-in outlook, which increasingly favors the Fed waiting until early 2016 to resume policy normalization.
The situation echoes a similar one last year, when a dovish shift in investors’ bets following a soft first quarter proved misplaced as the FOMC steadily tapered QE3 asset purchases ended the program on schedule. The US Dollar is likely to rise if Yellen hints at a parallel scenario this time around while downplaying likely knock-on effects from external headwinds (including the Greek crisis and recent Chinese financial market volatility).
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Asia Session
| GMT | CCY | EVENT | ACT | EXP | PREV |
|---|---|---|---|---|---|
| 23:50 | JPY | PPI (MoM) (JUN) | -0.2% | 0.1% | 0.2% |
| 23:50 | JPY | PPI (YoY) (JUN) | -2.4% | -2.2% | -2.2% |
| 01:30 | AUD | Home Loans (MoM) (MAY) | -6.1% | -3.0% | 0.7% |
| 01:30 | AUD | Investment Lending (MAY) | -3.2% | - | 3.0% |
| 01:30 | AUD | Owner-Occupier Loan Value (MoM) (MAY) | -5.3% | - | 3.5% |
| 05:00 | JPY | Consumer Confidence Index (JUN) | - | 41.7 | 41.4 |
European Session
| GMT | CCY | EVENT | EXP/ACT | PREV | IMPACT |
|---|---|---|---|---|---|
| 06:00 | EUR | German Wholesale Price Index (MoM) (JUN) | -0.2% (A) | 0.5% | Low |
| 06:00 | EUR | German Wholesale Price Index (YoY) (JUN) | -0.5% (A) | -0.4% | Low |
| 08:30 | GBP | Construction Output SA (MoM) (MAY) | 0.8% | -0.8% | Low |
| 08:30 | GBP | Construction Output SA (YoY) (MAY) | 3.1% | 1.5% | Low |
| 08:30 | GBP | Visible Trade Balance (£) (MAY) | -9700M | -8561M | Medium |
| 08:30 | GBP | Trade Balance Non EU (£) (MAY) | -2800M | -2094M | Medium |
| 08:30 | GBP | Trade Balance (MAY) | -2150M | -1202M | Medium |
Critical Levels
| CCY | Supp 3 | Supp 2 | Supp 1 | Pivot Point | Res 1 | Res 2 | Res 3 |
|---|---|---|---|---|---|---|---|
| EURUSD | 1.0785 | 1.0918 | 1.0977 | 1.1051 | 1.1110 | 1.1184 | 1.1317 |
| GBPUSD | 1.5228 | 1.5305 | 1.5343 | 1.5382 | 1.5420 | 1.5459 | 1.5536 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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