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Yen Drops as Euro Gains on Greece Hopes, Yellen May Boost US Dollar

Yen Drops as Euro Gains on Greece Hopes, Yellen May Boost US Dollar

Ilya Spivak, Head Strategist, APAC

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
  • See Economic Releases Directly on Your Charts with the DailyFX News App

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

GMTCCYEVENTACTEXPPREV
23:50JPYPPI (MoM) (JUN)-0.2%0.1%0.2%
23:50JPYPPI (YoY) (JUN)-2.4%-2.2%-2.2%
01:30AUDHome Loans (MoM) (MAY)-6.1%-3.0%0.7%
01:30AUDInvestment Lending (MAY)-3.2%-3.0%
01:30AUDOwner-Occupier Loan Value (MoM) (MAY)-5.3%-3.5%
05:00JPYConsumer Confidence Index (JUN)-41.741.4

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
06:00EURGerman Wholesale Price Index (MoM) (JUN)-0.2% (A)0.5%Low
06:00EURGerman Wholesale Price Index (YoY) (JUN)-0.5% (A)-0.4%Low
08:30GBPConstruction Output SA (MoM) (MAY)0.8%-0.8%Low
08:30GBPConstruction Output SA (YoY) (MAY)3.1%1.5%Low
08:30GBPVisible Trade Balance (£) (MAY)-9700M-8561MMedium
08:30GBPTrade Balance Non EU (£) (MAY)-2800M-2094MMedium
08:30GBPTrade Balance (MAY)-2150M-1202MMedium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.07851.09181.09771.10511.11101.11841.1317
GBPUSD1.52281.53051.53431.53821.54201.54591.5536

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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