Market Drivers May 18, 2015

Euro drifts lower on reports that Greece threatened to withhold IMF payment
USD/JPY rebounds on Toshin buying
Nikkei 0.80% Europe 0.11%
Oil $60/bbl
Gold $1227/oz.

Europe and Asia:
NZD PMI Services 56.5 vs. 57.6

North America:
No Data

On a quiet relatively news free start of the the week the greenback firmed against the market, rising for a variety of reason versus the euro, the yen and the commodity dollars.

USD/JPY popped nearly 50 points higher off the New York close on Friday driven by Toshin fund buying. The Japanese investment trusts that invest in non JPY assets are enjoying a rebound as retail traders bet on higher yields elsewhere and that dynamic has helped to push USD/JPY up at the open.

Last week the pair fell as series of disappointing US economic releases disheartened investors about the prospect of a US rate hike in September. The chance of such a move are still limited and this week the US calendar is very light offering little guidance to the market, but with US 10 year benchmark yields now firmly above the 2% mark, Japanese investors may be once again seeking higher yields offshore.

The euro on the other hand was simply pressured all night by concerns about Greece. Over the weekend the Greek newspaper Kathimerini reported that PM Tsipras wrote a letter on May 8 to Junker, Draghi and Lagarde telling them that Greece would not repay the 750 million euro due in May unless provided with liquidity.

Ultimately Greece did make the payment by drawing on a Letter of Credit, but the situation only highlights the precarious position of Greece as its cashflow dries to a trickle. It becoming clearer by the day that Greece is within weeks of running out of resources to pay its creditors, but the currency markets remain utterly unphased expecting some sort of last minute rescue to take place and any correction in the EUR/USD appear to be shallow.

The pair dipped to a low of 1.1368 in early European trade, but popped back towards the 1.1400 figure. With no US data on the docket, currencies may consolidate for the rest of the day, but given the significant move in the anti-dollar rally over the past several weeks this may be the week where the greenback finally catches a bid if on nothing else than simple profit taking as the major trading pairs such as the euro, cable and commodity dollars have all reached key resistance points last week.

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