The Greek PM's decision to hold a referendum on the final bailout conditions resulted in the removal of creditor's offer and severe downside gapping on Euro crosses.
GRExit to dominate market news and sentiment this week
EURUSD gapped down 157 pips this weekend in light capital the pending Greek referendum. The move, which angered creditors, saw the ECB halt liquidity lending to Greek Banks at 89bln, decline a request to extend the bailout by 5 days and effectively ended the negotiations to unlock vital funding. The referendum, which takes place this weekend, would appear futile as it is to vote on bailout conditions which no longer exist, but it is ow likely a de-facto vote to remain in the EU. Whilst we have a busy FX calendar this week we can fully expect this topic to dominate sentiment.
Open Interest (proxy for volume) has continued to decline across most FX majors with CAD futures shedding 38k contracts. This trend could continue as we enter July and August, which tends to see lower volume, liquidity and volatility. However it should also be noted that lower volume does not always result in lower volatility as, in the event of the unexpected, requires less effort to move the markets. A great example of this would be the news surrounding Greece over the weekend, and coming week/s.
US Dollar: Due to the Indecpendence Day bank holiday in US, this month's Nonfarm Employment Data will be on Thursday. Expected to have softened to around 230k (down from 280k previously) traders will want to see a print above 200k to fend off any dounbts of FED delaying interest rate hike.
Australian Dollar: According to the ASX RBA rate indicator there is only a 5% chance of a rate cut, which explains why AUDUSD is struggling to be driven lower with any conviction despite Greenback strength. I am still of the view that RBA have made their final 'planned' rate cut, and leaving it up to the FED to raise rate to drive AUD lower. Either way, Glenn Stevens speaks tomorrow night. In recent talks he has made reference to the 'crazy' house prices in Sydney and jawboned the currency, so be on guard for similar chatter. Trade balance warrants extra attention after exports plummeted to a multi-decade low and Friday presents Retail data, a proxy for consumer inflation (or lack of it...)
British Pound: Final GDP along with Manufacturing and Services PMI data will be closely watched for any signs of growth (and expected interest rate rises). Bullish bets saw 17.3k new long contracts placed and open interest restored.
Canadian Dollar: GDP will be the highlight for a neutral Bank of Canada, with the consesnsus being a 'whopping' 0.1%
New Zealand Dollar: I continue to see potential for NZDUSD to bounce from current, low, levels. The decline on NZDUSD has been losing momentum since RBNZ cut the OCR and strongly suggested further cuts are likely, suggesting this information is already prices in. Additionally, despite NZ Dollar being considered a ‘risk currency’, it has remained relatively unchanged following the risk-off environment created by Greece over the weekend. Whilst GDT prices continue to decline the rate of change is also showing signs of stabilising, making NZD vulnerable to a bounce higher if they remain relatively unchanged this week. And finally, Nonfarm payroll data on Friday could provide further support if less than 200k jobs are created, as it would provide further clues of FED delaying their interest rate hike.