Worrying less about Greece

July 20, 2015

For once, we start the week not worrying about Greece, or at least not as much as the previous three weekends. Still, there is the small issue of Greece having to repay EUR 3.5bln to the ECB today to cover maturing bonds owned by the central bank. This was a deadline that was not going to move, because defaulting on this would cause untold problems. The EUR 7bln bridge financing finalised on Friday was put in place to ensure that this did not happen. We’re seeing EURUSD recover from the lows made in the Asia session at 1.0820 against a slightly weaker dollar, especially against sterling and the Aussie. In general, we’ve seen currency volatility decline over the past couple of weeks, the CVIX (from Deutsche Bank) falling to levels last seen in late February.

For the week ahead, Greece will remain a factor, given the on-going disagreements between the European creditors and the IMF. The German Chancellor, in comments over the weekend, re-iterated that once the new program with Greece is in place, debt sustainability would be considered, but a haircut on nominal amounts outstanding was still off the table. The IMF continues to believe that this will not be sufficient. Elsewhere, the Aussie will have Tuesday’s RBA minutes to consider, together with inflation data on Wednesday. This weaker backdrop to commodity prices has put the Aussie under pressure in recent days and on that subject, note that Gold had a very messy Asia session, trading below the 1100 level. Sterling has also been volatile after Carney’s comments last week, suggesting an earlier interest rate rise around the turn of the year. The minutes to the latest BoE meeting are seen on Wednesday. For today, there are no major data releases, so we are likely to see a subdued start to the week, but volatility risks remain.

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