On Tuesday, the Euro softened versus many of its peers after domestic data produced disappointing results. The ZEW Eurozone Economic Sentiment Survey dropped from 61.2 to 53.7 in June. June’s German ZEW Economic Sentiment Survey declined from 41.9 to 31.5; overshooting the median market forecast drop to 37.3. In addition, the German ZEW Current Situation Survey dropped from 65.7 to 62.9 in June. The dampened sentiment has been linked to the situation in Greece and expectations of a fallout from a Greek exit. The single currency depreciation was somewhat slowed on Tuesday, however, after the highest European Union court backed European Central Bank (ECB) President Mario Draghi’s 2012 bond-buying scheme, initially challenged by the German’s amid fears the central bank was going beyond its lawful boundaries. Now that the scheme has been approved, however, the ECB has a greater arsenal for tackling any crisis which could occur following a Grexit.
Although domestic data results have impacted Euro movement, the geopolitical situation in Greece dominates trader focus. With a bulging calendar of debt repayments ahead, this week spells crunch time for the Hellenic nation. On Wednesday, the European Central Bank’s governing council meets to discuss whether to extend emergency liquidity assistance (ELA) for Greece. As the name suggests, ELA was only meant to be a temporary solution, so there is a distinct probability that the program will end. Eurozone officials meet on Thursday to discuss unlocking bailout funds for the cash-strapped nation. This is widely viewed as Greece’s last chance to unlock said funds before the credit-line expires. Should Athens fail to bridge gaps and find solutions to differences with European neighbours, the Greek government will almost certainly default on payments due to the International Monetary Fund (IMF) at the close of the month.
The Euro to US Dollar (EUR/USD) exchange rate was trending in the region of 1.1246 on Tuesday having declined by around -0.30%.
The US Dollar edged higher on Tuesday after declining significantly as a result of stunted US factory output in May. The appreciation is most likely the result of increased demand for safe-haven assets as the geopolitical upheaval in Europe weighs on trader risk-appetite. Domestic data produced mixed results. May’s Housing Starts dived by around -11.1%; well beyond the market consensus of a -4.0% decline. However, Building Permits advanced by 11.8% in May; bettering the forecast declination of -3.5%.
Wednesday is a significant day for those invested in the US asset as the Federal Open Market Committee (FOMC) makes its interest rate decision. Although most analysts predict that the committee will keep rates on hold at this juncture, any accompanying statements could reveal clues as to the timing of a liftoff. Thursday will also be important with inflation data due for publication. Having dipped into deflation territory, rate hawks will be hoping that inflation rebounds and pressures the FOMC into adjusting borrowing costs.