The car crash that represents FX developments in Q2 looks set to continue, with price action in EURUSD the most pertinent representation of how the price action in FX over recent weeks has defied the conventional wisdom. Friday saw a fairly substantial squeeze higher of over 1 big figure to make a new high of 1.1467 and we start the European session not that far below. The fact that bond yields have come down from the recent highs last week also underlines the extent to which the euro move looks like a short-squeeze, as those who have bet on a weaker single currency on the back of divergent monetary policy between the Eurozone and the US have been forced to throw in the towel. Furthermore, even though Greece is in the ‘endgame’ (according to ECB member Mersch over the weekend), this is also not impacting the euro, but that should not surprise given the history of Greece and ‘endgames’. Latest developments suggest that it was very close to defaulting on its IMF repayment last week and that the coffers really are starting to look very bare. The latest talk is of giving Greece a ‘take it or leave it’ ultimatum.
The data calendar suggests today should be fairly light in terms of risk events. Looking ahead, it’s the inflation data in the UK that grabs the attention for tomorrow. Sterling has performed strongly in the wake of the election, even though the Bank of England downgraded its growth forecast last week. Final inflation data is also seen in the Eurozone tomorrow, together with US numbers on Friday. The RBA will also release minutes to its latest meeting where it cut rates to 2% and suggest rates are likely to remain on hold for some time.