- Events in Greece this week will remain hurdles for a EUR rally
- Recent hawkish comments from RBA’s Stevens could be further affirmed in this morning’s minutes, propping AUD higher
- US existing home sales likely to highlight the ill US housing sector, keeping UST yields below 3%
USD performance was mixed on Monday, but overall, USD managed to stay strong against the likes of AUD and NZD. Two main hurdles lie ahead before we can see Greek concerns abate and risk make a full comeback. The first key hurdle is the vote of confidence in the government called by the Greek PM; the three-day debate in parliament will culminate in the vote scheduled for midnight Tuesday (local Greek time). The second will be next week when the Greek parliament votes on the budget – including further austerity measures. On the economic data front, higher PPI and wages in Europe reaffirm that the ECB will hike rate as we expect in July. This has helped prop up EURUSD overnight. But data later today may not be as helpful. The German ZEW survey is expected to decline with the expectations component falling into negative territory. In the meantime, the EUR will remain dependent on Greece-related headlines. A sharper deterioration in the news flow could see EURCHF extend the move below the 1.1950 record low.
This morning, the RBA kicks off the first of several G10 central bank events for this week. The RBA minutes may prove to be hawkish reiterating the recent comments from the RBA’s Stevens. Markets have essentially priced out any chance of another rate hike this year. Thus, a surprisingly hawkish statement from the RBA may prove to be beneficial for AUD. However, an AUDUSD rally anda break of 1.0668 (50-day ma) will remain contingent on the overall risk environment and the events out of Greece.
In the UK, public sector net borrowing data is expected to show an increase for May from the previous month. This may prove to be negative for GBP as fiscal austerity has helped the UK maintain its credibility. In addition, fiscal austerity should move forward especially since we expect the BoE to keep rates on hold through 2012 as wage prices remain subdued. Thus with expectations of a dovish BoE, we could see GBPUSD break below 1.60. In addition, an improvement in the overall risk environment can see GBPAUD back towards the lows of 1.5042.
US existing home sales are expected to decline significantly in May due to the plunge in the number of contracts in April. While the US housing market remains the Achilles heel of the US economy, negative housing numbers should continue to weigh on USD as well as US Treasury yields, keeping US Treasury yields below the 3% and USDJPY around the 80.00 level.
BNP Paribas
Corporate & Investment Banking