Euro Slides Then Bounces as Greek Situation Fluid

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Market Drivers July 1, 2015

EUR drifts to 1.1100 after Greece fails IMF payment EG meeting awaited
UK Manufacturing PMI 2 year low
Nikkei 0.46% Europe 0.68%
Oil $58/bbl
Gold $1172/oz.

Europe and Asia:
AUD Building Approvals 2.4% vs. 1.2%
GBP UK Manufacturing 51.4 vs. 52.6

North America:
USD ADP 08:15

USD ISM Manufacturing 10:00

The euro slid through the 1.1100 level before finding some support in morning European trade as traders continued to push the pair lower after Greece officially missed its payment to the IMF. A flurry of rumors about an 11th hour deal kept the unit bid yesterday but when it failed to materialize the euro started to give way. However the latest rumor that Greece is caving to almost of the bailout demands hit the market at 900 GMT and pushed the pair up once again towards the 1.1150 level

The Eurogroup is meeting today to examine and discuss Greece’s latest proposal and perhaps the market will have an answer before the end of the day putting a temporary end to the ongoing saga in the Eurozone. Otherwise the markets will have to wait until Sunday’s referendum to get further clarity on the matter. The latest polling data suggests that the NO vote could win but the situation remains highly fluid and no one really know what the Greeks will do in the ballot box.

If a deal is not done before the referendum, risk aversion is sure to escalate into the weekend and EUR/USD may see resumed selling ahead of the event as traders prepare for the worst.

All the political negotiations headlines have pushed the macro data off the stage as markets remain single focused on news from Greece, but the eco data did reveal some interesting tidbits today with UK PMI Manufacturing hitting a 2 year low. The report printed at 51.4 versus 52.6 suggesting that the slowdown in the Eurozone and the higher exchange rates are clearly weighing on manufacturing sector. Manufacturing is far less important to the UK economy than services but the fact that it is slowly creeping towards contraction must be a concern and cable did slip on the news dropping to 1.5650 from 1.5725 prior.

In North America the market will get a look at the latest ADP data ahead of the NFPs tomorrow with consensus view calling for another 200K+ print. Anything above that level should prove to be dollar bullish with USD/JPY possible recapturing the 123.00 figure, but the pair remains vulnerable to any risk-off flows that could hit the market if the Greek situation worsens.

With Eurogroup finance ministers meeting later in the day today, the North American session promises to be very active and volatility could rise as markets grapple with both political and economic risks as the day progresses.

Boris Schlossberg
Managing Director

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