Light on the Greek horizon?

Yesterday morning I threatened to kidnap Greek, French and German leaders, as well as the heads of the IMF and European commission, and duct tape them together until a deal between the two parties is done. I’m not sure if Merkel, Hollande, Tsipras et al are reading my morning notes but it seems my threat has worked.

Euro was lifted heavily yesterday morning for three good reasons, only one of which was Greek. Headlines that EU/IMF creditors are starting to cede ground ahead of putting a proposal in front of the Greeks hit markets yesterday lunchtime with the belief that a deal will be put to the Greeks within the next week or so. This will be with a view to have some kind of agreement signed and dotted at the next meeting of the Eurogroup on June 18th. There is nothing to say that the Greeks will accept this deal, of course. Bigger gift horses have had their mouths looked in.

Euro blows higher

As for the euro, we have to believe that a base of expectation has now been put in and the single currency will remain supported by that. It would likely take another Syriza/Varoufakis/Tsipras created nightmare to bring EURUSD back below 1.08 and GBPEUR to 1.42.

European inflation also pushed the euro higher. The preliminary reading of Eurozone inflation showed a pickup in prices by 0.3% on the year versus 0.2% expected. It seems that barring some form of Grexit-inspired recession, we have put the low point in in European inflation.

Draghi and the ECB due today

The final reason for the EUR strength was a little bit of deck clearing ahead of the ECB meeting and press conference this afternoon. These meetings are all about balance but the scales have been heavily tipped into positivity given the run of improving economic data from the Eurozone. On the negative side, we obviously have the Greek situation and criticism to come after the release of market sensitive information to investors by Benoit Couere on May 18th.

Updated staff forecasts should continue to show us that the ECB believes that it will hit its inflation targets as long as QE is maintained. Funny that. I like the ECB to take some of the steam out of the single currency later today although markets may be unwilling to get too heavily into the USD this afternoon ahead of Friday’s payrolls announcements.

Service sector readings due

Sterling is back in its range against the USD courtesy of that move in EURUSD yesterday and will be hoping that the service sector PMI, due at 09.30, performs better than the recent readings from the manufacturing and construction industries. The trend of improving real wages should drive domestic demand but we must look for further weakness in export orders as a result of the strong pound and weakness in the Eurozone.

Similar figures are due from Europe and the US today. Italy’s number is due at 08.45, France at 08.50, Germany at 08.55, the Eurozone wide measure at 09.00, and the US number at 15.00.

Elsewhere

AUD has continued its run higher this morning after a strong GDP announcement of 0.9% vs 0.7% expected. This follows yesterday’s neutral language from the Reserve Bank of Australia.

Away from the services PMIs and today’s European Central Bank meeting we also have Eurozone unemployment and retail sales reports this morning (10:00), ADP employment from the US (13:15) and the Federal Reserve’s Beige Book (19:00) that should continue the language of a recovery from Q1’s wobble.

Indicative Rates Sell Buy
GBPEUR 1.3764 1.3787
GBPUSD 1.5328 1.5349
EURUSD 1.1123 1.1145
GBPJPY 190.22 190.44
GBPAUD 1.9669 1.9693
GBPNZD 2.1370 2.1397
GBPCAD 1.9015 1.9042
NZDUSD 0.7167 0.7182
GBPZAR 18.761 18.793
USDZAR 12.227 12.254
GBPPLN 5.6725 5.6965
EURJPY 138.10 138.31