Euro Ranges as Market Feels Grexit Fatigue

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Market Drivers June 18, 2015

Greek talks remain in limbo Tsipras to hold cabinet meeting
UK Funds create contingency plans in case of Brexit
Nikkei -0.09% Europe -1.10%
Oil $59/bbl
Gold $1179/oz.

Europe and Asia:
GBP Rightmove HPI 3.0%
EUR Trade Balance 24B vs. 20B

North America:
USD Empire 8:30

CAD Manufacturing 8:30

USD IP 9:15

The euro was marked down on the start of trading this week slipping to a low of 1.1188 after reports that the negotiations between Greece and its creditors broke up over the weekend after only 45 minutes of talks. But the pair rebounded in morning European trade after reports that the Greek negotiating team was to meet with PM Tsipras at 1200 GMT later today.

There is no doubt that the currency market is in the midst of full on Grexit fatigue as the on and off nature of talks and the lack of any progress either way has frustrated both longs and shorts with the market reacting less and less to each daily headline.

There are even reports that many institutional traders have turned to options in order to avoid the whipsaw volatility of spot. Still the general view of the market remains relatively complacent with options markets putting little premium on EUR puts as currency traders still view Grexit as more of a sideshow rather than an existential threat to the euro.

Away from the daily Grexit saga the underlying fundamentals in EZ are actually improving with QE seemingly able to arrest the disinflationary pressures in the region as the latest string of CPI readings has turned positive. ECB member Nowotny echoed that sentiment today stating that he sees first signs of success from QE.

If Greece does exit the Eurozone, the risk may not be existential, but nevertheless serious as the temporary impact could be deflationary unwinding some of the progress achieved by QE. That is why EZ officials continue to work hard on establishing a deal and why the ECB remains committed to its liquidity operations for the time being.

On the economic side the calendar was sparse today with only EZ Trade Balance on the docket with that reading beating it mark as the surplus rose to 24.3B versus 20.0B eyed. The region is clearly starting to benefit from better global demand and lower euro and absent the Greek default risk would probably see better flows into the EUR/USD as deflation fears have eased. But until the Grexit issue is resolved the pair is likely to seesaw in the current range.

In North America today the market will get a look at the Empire Manufacturing and the IP data but neither release will have much impact on trade as focus turns to this Wednesday’s FOMC meeting and presser. No one expects any surprise announcements from the Fed, but traders will be watching Ms. Yellen’s posture and tone which in the last month has turned decidedly hawkish as the Fed chief signaled that she is getting ready to normalize rates. But until she speaks volatility in FX may remain muted as markets continue to tread water.

Boris Schlossberg
Managing Director

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