It has been a quiet start to the Asia session, with a lack of market moving economic data and Chinese markets on holiday. There has however been some counterintuitive movement in the euro, with the common currency jumping higher at the open despite the inability of Greece and its creditors to agree on a bailout plan ahead of D-day. It seems the market is insensate to the howl of the wolf, at least at this distance. As D-day approaches this week the market may become increasingly agitated.
Greece’s bailout deadline is fast approaching, but the euro isn’t worried
The euro brushed aside fears of a Grexit, at least for the time being. EURUSD actually jumped higher at the open, despite the increased threat of Greece being unable to pay its bills. The ECB continued to provide some emergency funding to Greek banks that are struggling to keep pace with mounting withdrawals, but an all-inclusive bailout plan remains elusive. A high-level emergency summit tonight is being hailed as the last chance for Greece to secure funding before its EU rescue program expires next week, but we’ve heard the wolf cry too open and the market isn’t taking the bait. It’s likely that negotiations will continue this week if an accord isn’t reached tonight – EU leaders have already told the Greek PM that a deal with his countries bailout monitors needs to be before tonight’s meeting, but this is both unlikely and doesn’t dismiss the prospect of further negotiations tonight.
The aussie is still treading water, and it’s getting tired
The Australian dollar is still stuck between a rock and a hard place. As we stated last week, AUD has a cap on it; if it rallies the risk of a rate cut greatly increases. A small jump in the commodity-backed currency last week is being blamed for around a 10% increase in the market’s expectations for further easing this year from the Reserve Bank of Australia (RBA). The bank has stated on numerous occasions that it believes the Australia dollar is overvalued and needs to fall further to be assist economic growth. In fact, the rise and fall of the aussie is a key ingredient in the RBA’s policy mix; a stronger currency increases the imputes for the bank to loosen monetary policy, while a softer one decreases it.
EURAUD: the biggest loser
Despite the market’s ability to brush aside Greek fears at the moment, the euro isn’t a currency of choice, either is the aussie for that matter. This makes EURAUD an interesting pair to watch for any potential discord within the euro; a strong Australian dollar against the euro is unlikely to be the result of fundamental strength in the aussie – there’s no headline data/events from Australia this week, although the it’s worth keeping an eye on key commodity prices and China’s private sector PMI data.
From a technical perspective, EURAUD remains in an unconvincing upward trend as it attempts to regain some ground it lost in mid-June. A break of this upward trend would be a bearish development, with further support around 1.4515. On the upside, we’re eyeing resistance around 1.4750/70.