The market is waking up to fresh Greece worries as there was no further progress over the weekend in Brussels, and as the clock ticks ever louder into the end of this month in just over two weeks.
The latest hope is that this Thursday/Friday’s Eurogroup meeting of finance ministers will break the logjam in negotiations, but should we really expect something here or will Tsipras and company take things to the wire ahead of the June 30 deadline for its next International Monetary Fund repayment? Or beyond?
Today’s economic calendar provides a couple of second-tier data points from the US this week and not much else ahead of a Wednesday through Friday that offers three days more heavily populated with event risks than I can ever recall seeing previously.
Wednesday’s Federal Open Market Committee meeting is the most obvious highlight, though the market doesn’t seem to be holding its breath in anticipation of anything dramatic from the Fed. This is possibly a justified stance, but it leaves the market very open to any surprises, particularly to the hawkish side.
This will be a meeting with fresh Fed economic and policy projections and a press conference led by Fed chair Janet Yellen.
And as if the four central bank meetings weren’t enough (FOMC Wednesday, SNB and Norges Bank Thursday and BoJ Friday), we also have RBA minutes tonight (dovish bias) and the Wednesday Bank of England minutes, which are really more like a BoE meeting due to the lack of guidance on actual BoE meeting days.
Long story short? Stay careful out there this week.
Chart: GBPUSD
GBPUSD looks like it is at the high end of its potential range as it interacts with the 61.8% FIbonacci retracement level on this throwback rally after the big bearish reversal in May. Wednesday will tell us whether that is the correct assessment as we have both the BoE Minutes and FOMC meeting on tap that day.
G-10 rundown
USD: USD picture is a bit mixed ahead of FOMC, as the market is unwilling to believe that the Fed wants to inject any drama at this juncture. The thinking is that Q2 data thus far looks encouraging, but no sufficiently so for the Fed to adjust expectations higher. I suspect risks are to the hawkish side, but more because of market complacency than because the statement/projections/Yellen will say anything aggressive.
EUR: Greece, Greece, Greece. The market is extremely tired of this issue and is unwilling to trade the headlines at this point judging from the price action. But look at implied volatilities in options and we can see that the market is looking for an explosive move once any kind of clarity emerges. The main initial focus will be on whether the smoke clears at the Thursday/Friday Eurogroup meeting of finance ministers.
JPY: Will Kuroda follow up his recent comments on yen weakness with more explicit guidance that pushes the prospects for any new easing measures further over the horizon? Risks point to JPY upside, particularly in the crosses, unless bond markets are selling off steeply.
GBP: Over-performing relative to interest rate spreads, against the US dollar – but let's see if the BoE has anything to say on Wednesday that moves the market's assessment of the BoE's thoughts on its first rate hike. With UK core inflation at 14-year lows, what's the rush?
CHF: SNB up Thursday. The SNB is likely getting restless at this point, as they would very much like the CHF weaker – but they may want to wait for the smoke to clear on Greece to see where the real market price for CHF lies (and any policy move would likely have far more impact).
AUD: RBA minutes are up tonight and the market may be on the wrong foot in trading AUD resilience – we are biased for a dovish set of minutes as the RBA remains very concerned about the trajectory of the Australian economy, as it should be.
CAD: Looking higher in USDCAD, though CAD may trade passively unless oil prices are in motion this week, or if we see something significant on Friday with the Canadian CPI and retail sales reports due.
NZD: Weak and expected to remain that way after last week’s dovish broadside from the RBNZ.
SEK: SEK trading at the strong end of the range in EURSEK and there may be potential for 9.05/10 test, but look for the Riksbank to make more noise if we get down there and rate differentials suggest little value in bidding up SEK in general.
NOK: A majority looking for an interest rate cut at Thursday’s Norges Bank meeting, but risk of a “no-cut” perhaps rising rapidly as oil prices remain quite high and the latest investment survey suggests. Even if we get a cut, the guidance may be quite neutral, so looking for reasons to get long NOK unless Norges Bank waxes fully dovish.
Economic Data Highlights
- New Zealand Performance Service Index out at 58.0 vs. 56.5 in Apr.
- Sweden May Unemployment Rate out at 8.0% vs. 7.9% expected and vs. 8.3% in Apr.
Upcoming Economic Calendar Highlights (all times GMT)
- Euro Zone Apr. Trade Balance (0900)
- Canada Apr. Manufacturing Sales (1230)
- US Jun. Empire Manufacturing (1230)
- Canada May Existing Home Sales (1300)
- Euro Zone ECB President Draghi to Speak before EU Parliament (1300)
- US May Industrial Production and Capacity Utilization (1315)
- US Jun. NAHB Housing Market Index (1400)
- US Apr. TIC Flows (2000)
- Australia RBA’s Debelle to Speak (2155)
- Australia RBA Meeting Minutes (0130)