European futures trading up mostly on Thursday on the back of the optimism that Greece will be able to hammer out a deal with its creditors. However, how much is that credible, there is always a massive question mark on this, but one element is for certain that every headline from Greek side is more optimistic, which drives the euro and the equity markets higher, but then comes the counter trend headline from the creditors- particularly from the German side, evaporating all the hope like sun evaporates water in the Sahara desert.
But, if you are a scalper or a day trader this is exactly the kind of situation you are looking for- big swings in the market which are short lived. There are a few outcomes which you can prepare yourself ahead of the looming 5th of June deadline. Firstly, Greece does have money to pay this bill and they can use this situation as a good gesture to strike a deal with its creditors, which could push the euro higher, and of course the equity market with it. Secondly, they can always defer the payment and ask the IMF that rather than making four different payments they will make one lump sum payment of 1.6 billion euro and the use the time to unlock the strapped case because without that there is no possibility of them paying their bill.
Finally, you can never rule out the possibility of a default which will pull the euro and the equity market sharply lower. But remember default on payment does not necessarily equals to Grexit or immediate credit downgrade and there are two reasons for this. Firstly, it will depend on the ECB if they still think that the collateral which is used against the ELA is good enough or not. If the ECB says they still think that they are comfortable in holding the collateral that means liquidity stays in place and the bank deposit bleeding may not intensify. However, on the flip side, if the ECB cut the ELA, then we will have capital control.
So the G7 meeting once again will be hijacked by the Greek agenda and the policy makers will be discussing how to find the best solution for the thorny issues which both sides are facing.
Back in the UK, it will be all about the UK GDP data and how the growth is fading. The sterling strength is becoming the biggest headache for the BOE because with stronger currency disinflation is defiantly on the card and the bank will struggle to fight their corner. The forecast for the second quarter estimate is for 0.4%, which is higher as compared to the previous reading of 0.3%.
As for the US, the story is very much similar when it comes to the strength of the currency which Yellen stimulated. If the unemployment claims data do show an improvement in the labor market this will give more confidence for a rate hike and this could potentially push the dollar much higher.