EUR Pares Back Overnight Weakness

EUR pares back overnight weakness as, despite a Grexit appearing closer than ever before, contagion seems limited


The EUR has experienced a roller-coaster ride on the first day of the week, selling off substantially overnight after the latest Greek developments, before paring most of these losses throughout the European and US session. Participants during the Asia session initially saw a substantial sell-off in EUR, with EUR/JPY falling as much as 460 pips, as the impact on the cross was intensified due to safe haven flows into JPY. However, shortly after the European open, EUR staged a turnaround amid a dampening of contagion fears after a less severe impact on European peripheral bonds than expected was observed, with the Spanish and Italian 10Ys both widening against the German benchmark by around 30 bps, substantially less than the 150-175 forecast by Goldman Sachs (NYSE:GS).

Comments from German Chancellor Merkel and EU’s Juncker indicated that while a deal before tomorrow’s deadline is extremely unlikely, the door is open for further talks, suggesting that hopes for a deal are not completely dead in the water. Elsewhere, EUR was further bolstered by SNB's Jordan, who stated that the central bank had been active in the FX market overnight, emphasizing the potential for the SNB to step in to weaken the CHF and thereby prop up EUR.

Finally, the USD opened higher today, but fell throughout the European session to end the session lower by around 1% amid JPY strength and the EUR recovery. Elsewhere, today’s main data point (US Pending Home Sales 0.9% vs. Exp. 1.0%) came out lower than expected, but failed to move the greenback.

Looking ahead, tomorrow sees German and Eurozone employment data, the final reading of UK Q1 GDP, Canadian GDP, Eurozone CPI estimate, US Chicago PMI and API Crude Inventories as well as comments from ECB’s Nowotny and Fed’s Bullard.