Euro Trips Stops Despite Progress on Greece

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Market Drivers June 23, 2015

EUR Greek deals appears near, but EUR sells on news
EZ PMI slightly better but market ignores
Nikkei 1.87% Europe 0.74%
Oil $60/bbl
Gold $1183/oz.

Europe and Asia:
AUD HPI 1.6% vs. 2.2%
CNY Flash PMI 49.6 vs. 49.4
EUR EZ PMI 52.5 vs. 52
EUR EZ PMI 54.4 vs. 53.7

North America:
USD Durable Goods 8:30

USD New Homes Sales 10:00

The euro slid lower through Asian and early European trade tripping stops all the way through the 1.1250 level despite what appeared to be progress on Greek negotiations and marginally better results in EZ PMI data.

In a classic sell the news response the euro started to weaken markedly as comments from EZ officials became progressively more optimistic on Greece. The pair dropped through the 1.1300 level and continued to drift lower taking out a series of stops along the way before finally finding some support ahead of the 1.1200 figure.

One reason for the decline is the assumption by the market that if any any deal is done, the ECB will have to increase its QE significantly in order to provide liquidity to the system, especially if the Greeks negotiate any type of haircuts on their debts. We argued yesterday that any deal with Greece would alleviate the short term global credit concerns and therefore allow the Fed to pursue a more aggressive monetary policy thus strengthening the dollar and weakening the euro as well.

In either case, barring any significant deterioration in US data that would put the notion of normalization in doubt the EUR/USD appears to have made a near term top at the 1.1400 level and may continue lower from here.

Today’s economic data had no impact on trade whatsoever even though the EZ PMI’s came in slightly better with Manufacturing rising to 52.5 from 52 the month prior while Services PMIs increased 54.4 versus 53.7. The data from the region continues to show steady though unremarkable growth and should provide ECB with confidence to pursue its QE program.

In North American trade the market will get a look at Durable Goods and New Home Sales data. Core Durable Goods are expected to rebound to 0.6% from last month’s -0.2% read. while New Home sales are projected to inch up to 524K from 517K the month prior. Any positive print in US data could push the EUR/USD even lower as sentiment shifts towards the buck with the pair testing the 1.1200 figure as the day progresses.

Boris Schlossberg
Managing Director

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