The euro fell back below 1.11 on Monday after Greek voters rejected bailout terms for a debt deal, raising concerns about the country’s exit from the Eurozone. Sunday’s referendum result showed 61% of Greeks voted ‘No’ to back the government in rejecting the austerity terms of a bailout.
Now the focus shifts to some important events surrounding the European Central Bank and European leaders and finance ministers. In the meantime capital controls are still in place in Greece.
The ECB will discuss the provision of emergency funding to Greece’s banks (ELA) in a telephone conference call later on Monday afternoon, while Eurozone finance ministers will meet on Tuesday ahead of an EU Summit. Meanwhile after the resignation of Greek finance minister Yanis Varoufakis, markets await to hear who will replace him.
The Eurogroup expect to receive new proposals from Greece regarding a new bailout that go beyond the previous proposals. Eurogroup President Jeroen Dijsselbloem said keeping Greece in the Eurozone is still their objective. But European Commission Vice-President Valdis Dombrovskis said the ‘No’ vote has widened the gap between Greece and other Eurozone members.
The euro made a recovery versus the dollar in the European Session from an Asian session low of 1.0968 to 1.1094 helped by better-than-expected numbers from both German factory orders and Spanish industrial output data. However the upside momentum faded and prices fell back even after an upbeat Eurozone sentiment report from Sentix. However, the key level at 1.1000 proved to be good support and prices bounced back up from there to 1.1040.
Sterling traded sideways against the dollar, hovering around 1.5550 for most of the session except for a brief spike to 1.5596. Risk for the pound lies ahead with Tuesday’s UK industrial production data and Wednesday’s budget release and then Thursday’s Bank of England meeting.
The dollar made a notable recovery against the yen from its Asian session open. It bounced from 121.85 to 122.92 before falling back to 122.54 but bounced again after US data. The Institute for Supply Management services sector index increased to 56.0 from 55.7 in May but was short of analysts’ expectations of 56.2. Just before the data from ISM, another service sector survey was released by Markit which showed reasonable growth at 54.8 for the final reading which was in line with the flash estimate but was down from May’s 56.2.
Coming up next on the economic calendar is the Reserve Bank of Australia policy meeting early on Tuesday.It is expected to maintain its cash rate at the record-low of 2%. The RBA statement would be interesting to read to see what the Bank’s outlook will be considering all the uncertainty surrounding Greece and more importantly the crash in the Chinese stock markets since China is a major trading partner for Australia.
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