Commodity/risk currencies outshine EUR-positive impact of Greek Budget vote. Still plenty of event risk ahead, but AUD and CAD can go better if no big hiccups, EURCHF also seen higher.
The Greek socialist government of George Papandreou won approval for a €28bn package of tax increases and spending cuts by 155 votes to 138 with five abstentions. EURUSD reaction was muted, after the run up on Monday and Tuesday partly motivated by anticipation of the outcome that has now materialized. The passage of the implementation bill on Thursday should now be a formality and while there is still plenty of Greece/euro peripheral event risk ahead (including that related to efforts to get the ECB and ratings agencies on side with PSI in the second Greek bailout) attentions may now turn elsewhere.
‘Elsewhere’ includes the approaching ECB meeting next Thursday and subsequent rhetoric (ahead of which ‘flash’ Eurozone CPI is due today) US data including Thursday’s initial claims and Chicago PMI before Friday’s ISM (and too China PMI in Asia this morning) and the extent to which this latest back-up in US Treasury yields proves to have legs. The latter may compete for the affections of the FX market with a further unwind of the safe-haven premium in Bund prices.
We expect dips in EURUSD to remain fairly shallow barring a bigger ?risk off? move from Friday’s ISM or elsewhere, looking for Reserve Mangers in particular to be providing support. Certainly there was not much to write home about flows-wise in terms of either leveraged or real money participation in the wake of the Greek vote. Hedge Funds hoping/positioned for the worse have probably given up on the short Euro trade for now but may not be inclined to go outright long euros barring a clean break above 1.4500; while institutional investors who for the most part rode through the recent volatility aren’t seen adding significantly to exposures here, especially with the aforementioned significant macro event risks just ahead. ISM in particular could turn out to be the bigger mover on the week than Greece.
Commodity and risk currencies stole the show from Greece and the euro on Wednesday (NZD and SEK the best performers) with an across-the board bullish DOE report on inventories very much part of the story (crude and gasoline inventories both falling much more than expected and distillates rising by much less than forecast). So much for the IEA’s reserves release. In the wake of unwelcome Canadian CPI news Wednesday, if the oil price rally holds and then if the Thursday/Friday data slate does not undermine risk sentiment too much (big ‘Ifs’ of course) USDCAD is prone to stretch beneath 0.9700 to at least test the 0.9650 area. AUDJPY is also in our sights for fresh advances if China PMI holds comfortably above 50.
While commodity currencies are at obvious risk of another setback (SEK especially) on weak data, this is less likely to be the case for EURCHF. Though the latest KoF leading indicator shows little sign of a significant slowdown, the strength of the safe haven EURCHF offer in the run up to the Greek vote means that we would expect a further unwind of these flows in coming days and weeks.