Market Drivers June 24, 2015
EUR Greek deal still not complete
GE IFO misses but EUR/USD pops above 1.1200 on short covering rally
Nikkei 0.28% Europe -0.20%
Europe and Asia:
JPY BOJ Minutes reaffirm policy
EUR IFO 107.4 vs. 108.2 eyed
USD GDP 8:30
The EUR/USD staged a short covering rally in early European trade today despite a weaker than expected IFO that suggested that the lower currency was no longer having a positive impact on growth.
The IFO report printed slightly lower than forecast at 107.4 versus 108.2 eyed and more than a point less that the month prior reading of 108.5. This was the third consecutive monthly decline in IFO readings and the first miss since March.
In commenting on the numbers IFO stated that it expects to see GDP growth of 0.6% in Q2 of this year and 0.4% in Q3. The institute noted that much of the initial boost in activity this year due to a lower euro is starting to fade especially as the exchange rate has stabilized above the 1.1000 level.
The IFO also noted that the uncertainty surrounding the Greek negotiations has not yet impacted sentiment, but it remains a concern, especially if it causes any type of tumult in the capital markets that could create a short term contraction in demand.
As to Greece the situation remains in a state of suspended animation with no sense that a formal agreement is immanent. Senior EU officials have stated that they would like to have an agreement concluded tonight ahead of the Thursday’s EU summit. The EUR/USD has been acting a bit better today with firm bids underneath the 1.1200 level as some of the specs may be positioning for some possible formal announcement of a deal. Any relief rally may be short lived however, as markets could focus on the possible further liquidity expansion by the ECB in the wake of any formal agreement.
The EUR/USD could also come under further selling pressure if today’s US data proves better than expected. The final GDP print is forecast to come in at -0.2% but some analysts such as Merrill Lynch are calling for a much better figure of 0.4% due to stronger consumer demand and higher residential build. If the GDP numbers do turn positive they should a strong impact on USD/JPY with the pair rising towards the 125.00 level.
Weaker GDP growth was one of the principal concerns of Fed Chair Janet Yellen in her presser last week and if today’s data is indeed better, market expectations of September rate hike are likely to rise pushing USD/JPY higher and EUR/USD lower irrespective of Greece.