The Greek government’s brinkmanship continues as it refuses to bend on some of the key reforms its creditors are requesting it makes before unlocking further bailout funds. And it is running out of time to do so. Greece must make over EUR 1 billion in payments to the IMF over the next month.
Greek 3-year yields spiked to a new local high above 28% yesterday. So why did the euro strengthen on the news? I think there is actually a relatively straightforward explanation. In the short term, the short euro trade is a carry trade – which needs strong risk appetite to support it. With risk appetite crumbling yesterday, the market pulls in its short positions.
Sure, if a Greek situation were to lead to broader contagion worries, we might see the euro selling off – but I think the further bounce in the euro yesterday shows that in the near term, risk appetite is the most important support for a weaker euro.
Without more risk-off/Greece worries, I wonder whether EURUSD has any potential higher here. The levels I am watching are the 1.0840 level first and then the 1.1000 level if the former is taken out. Some are suggesting that the end of April is a critical time frame for Greece, but others argue that Greece can stave off a default until as far out as July if it delays public spending.
GBPUSD
Today’s UK employment report and earnings data look important for GBPUSD, which is pushing near the 1.5000 level again. Interest rate spreads out the front end of the curve suggest we should be looking for a break back into the higher range above 1.5000, but the election uncertainty is also weighing over the next few weeks. It’s easy to call for a retracement back lower on weak data today, but could a strong data point take us on a run above 1.5000 next week?
The G-10 rundown:
USD: Remains on its back foot as the market is at a new low for the cycle in terms of rate expectations from the Fed – the next critical event risk on that front is not until the April 28-29 Federal Open Market Committee meeting. In the meantime – we have CPI today and a strong print would be an interesting test of the USD sceptics after recent USD weakness.
EUR: Again, risk appetite and positioning seem to be playing the dominant roles here, as there was nothing in the Wednesday European Central Bank meeting that was euro-supportive. If we push back below 1.0700 in EURUSD, the bears may find renewed confidence. Otherwise, 1.0840 is a tactical upside focus for whether a fresh 1.10 test comes into play.
JPY: Playing its odd low-beta USD role lately (weak, but less weak than the USD and if the USD rallies, like strong, but less strong). Not sure what changes the dynamic there, though we are nearing important support in USDJPY toward 118.75/50.
GBP: Looking for today’s employment report for whether a strong report can see the market take the action in GBPUSD above 1.5000 (supported by interest rate differentials) or whether election jitters will keep the pair in the lower range.
CHF: Here, the reaction to Greece news is more straightforward, as EURCHF came under pressure on yesterday’s developments, but that opens up the upside path if any clarity on Greece emerges.
AUD: Still trying to keep its rally legs after yesterday’s employment report. The range highs toward 0.7938 are the first major resistance. Looking for bearish reversal as a reason to get involved sooner rather than later.
CAD: The CAD rally provides long-term bears compelling levels for option strategies looking for longer-term (3-month plus) weakness. In the meantime, the first major support from a Fibonacci perspective doesn’t come in until 1.2000 and the 200-day moving average is rising fast, but still down near 1.1650.
NZD: A big test ahead for the broad NZD strength as we have the Q1 CPI report up first thing Monday, which will tell us whether AUDNZD has any hope of staving off a parity test for the cycle. Also – the 0.7700 area in NZDUSD is a critical one, followed by the 200-day moving average, which is working its way lower from about 0.7865.
SEK: The local support gave way in EURSEK yesterday as the action took the pair back below the 200-day moving average with no real catalyst.
NOK: The oil rally is the key support here for NOK, and the rally will end if the oil rally ends. Locally, the EURNOK sell-off looks overdone with 8.50 as the obvious first major resistance level on any bounce.
Economic Data Highlights
- Japan Mar. Consumer Confidence Index out at 41.7 vs. 41.3 expected and 40.7 in Feb.
Upcoming Economic Calendar Highlights (all times GMT)
- Eurozone Feb. Current Account (0800)
- UK Mar. Jobless Claims Change (0830)
- UK Feb. Average Weekly Earnings (0830)
- UK Feb. ILO Unemployment Rate (0830)
- Eurozone Mar. CPI (0900)
- Eurozone ECB’s Weidmann and German Finance Minister Schaeuble to hold press conference (1130)
- US Mar. CPI (1230)
- Canada Mar. CPI (1230)
- Canada Feb. Retail Sales (1230)
- US Apr. University of Michigan Sentiment (1400)