Currency Market Analysis

Jun 23, 2015 | Currency Market Analysis

Global Themes

European leaders gave Greek Prime Minister Alexis Tsipras’s government 48 hours to make the final push needed to satisfy creditors and end a five-month standoff over aid that risks splitting the euro. Leaders from Greece’s 18 fellow euro-zone countries agreed that Tsipras’s government was finally getting serious about striking a deal after it submitted a set of reform measures that began to converge with the terms demanded by creditors. They agreed to step up the pace of negotiations to secure a breakthrough on Wednesday that leaders can sign off at the end of the week. The package of proposals represents “a certain step forward, but it was also said very clearly that we’re not yet where we need to be,” German Chancellor Angela Merkel told reporters in Brussels after an emergency summit Monday night. “Hours of the most intensive deliberations lie ahead of us.”

Greek stocks and bonds surged earlier on Monday after Tsipras’s government submitted new proposals addressing the areas of pensions and fiscal targets that had proven the chief barriers to a deal. Disagreement remains over the fine print, with revenue from sales-tax rates the chief sticking point, according to an EU diplomat who asked not to be named because the talks are private. A meeting of euro-area finance ministers was convened for Wednesday to prepare the ground for a second, scheduled summit of European Union leaders that begins the following day. Negotiations with creditors will continue over the coming 48 hours to achieve a “total and viable solution,” Tsipras told reporters in the early hours of Tuesday. The government aims for the country “to be able to stand again on its feet very soon,” he said.With the clock ticking toward a June 30 deadline both for the expiry of the European portion of Greece’s bailout and payments to the International Monetary Fund, leaders stressed the work still to do in the time available. While they didn’t discuss the IMF payment, they did raise Greece’s future financial viability given its debt load, the highest in Europe. French President Francois Hollande cited “the lengthening of maturities, or re-profiling of the debt,” saying that “it needs to be indicated as a forthcoming step,” albeit not in the coming days. Merkel said that rendering Greece’s debt sustainable wasn’t discussed in detail, but “it became clear that this question of financial viability has to be part of the agreement.”


The loonie slipped to two-week lows, weighed down by a resurgent U.S. dollar and slumping oil prices which tipped back below $60. An absence of Canadian data this week should see the loonie take its main cues from news south of the border. So far the week is off to a constructive start for the world’s top economy, with important news on the U.S. consumer to follow from Thursday forward. Better data has boosted U.S. yields, lifting the dollar in the process.


The yen flirted with one-week lows as ascending U.S. yields weighed, along with upbeat market confidence in a Greek deal for more aid which sapped appetite for lower-yielding, safer plays. Rising U.S. yields often entice the Japanese investor to shift money overseas to reap higher returns. Greece isn’t out of the woods, however, so any signs of a snag in debt negotiations could quickly reinvigorate market appetite for haven assets like the yen. Europe is trying to clinch a deal for more money for Greece over the coming days.


The dollar got a fundamental boost in constructive U.S. data this week which sent it to two-week highs against the euro. Existing home sales rose at the fastest rate in years while a gauge of business spending rose for the second time in three months. Solid U.S. data has pushed up U.S. Treasury yields, a reflection of greater confidence in a Fed rate hike this year. The final estimate of U.S. first quarter growth on Wednesday is forecast to show a smaller contraction while data on the all-important consumer on Thursday will also be pivotal in shaping expectations for U.S. interest rates.


Greek stocks and bonds extended their rally on Monday, with the Athens Stock Exchange Index closing 9 percent higher for its biggest closing gain since Feb. 24. The yield on the two-year government bond fell 511 basis points to 23.8 percent, and the 10-year yield fell 150 basis points to 11.2 percent. The rally was fed by hopes of an imminent deal after the Greek government said its proposals included steps to eliminate early retirement options, hike the sales tax, increase tax surcharges that middle- and high-income earners pay and to introduce a levy on companies with annual net income of more than 500,000 euros ($568,000). Even if he reaches a tentative accord this week, Tsipras will still need the support of parliament in Athens, which is dominated by lawmakers from his Syriza coalition opposed to austerity measures such as pension cuts. For its part, Germany insists on Greek lawmakers taking the first step by passing economic policy changes before the German lower house will agree to a revised aid deal.

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