Over the past week, the Euro to US Dollar (EUR/USD) exchange rate was trending within the range of 1.0966 – 1.1398.
At the beginning of last week, the Euro was trending in a position of strength amid optimism that Greece would find a compromise with creditors to unlock vital bailout funds. The confidence stemmed from the fact that there were several emergency meetings scheduled, which convinced investors that both sides were doing their level best to hash out an agreement ahead of looming deadlines – such as the end to the Eurogroup bailout period. Even after the International Monetary Fund (IMF) rejected the latest proposal submitted by the Hellenic nation, sentiment was still edging towards optimism that Greece would remain part of the Eurozone.
The US Dollar, meanwhile, softened over the course of last week in response to a succession of weak ecostats. Of particular detriment was a slowdown in US Services growth. The disappointing results weren’t enough to significantly devalue the resilient ‘Greenback’ (USD) however, which prompted Federal Reserve Open Market Committee (FOMC) members to site Dollar overvaluation as the main stumbling block to a benchmark rate increase.
During Monday’s European session, however, the Euro dived across the board as optimism regarding the future of Greece as a member of the currency bloc waned significantly. After the latest session of emergency talks between Greek and Eurogroup officials ended with no progress made, Greek Prime Minister Alexis Tsipras called for a referendum on the proposed austerity measures. The referendum is due after the Eurogroup bailout period ends and after the large IMF payment is scheduled to be made. This could mean that, even if the Greeks say yes to Austerity it doesn’t guarantee they will receive aid. Greek banks have been closed for the rest of the week and capital controls have been imposed so as to avoid complete financial meltdown.
Monday’s European session saw the US Dollar initially advance thanks to safe-haven demand amid geopolitics in Europe. However, after domestic data produced disappointing results, the US Dollar resumed declination as futures traders pare bets as to the timing of a Federal Reserve cash rate increase. Of particular disappointment on Monday was Yearly Pending Home Sales which came in at 8.3% in May; missing the median market forecast 11.8% increase in home sales.
Looking ahead, domestic data is unlikely to be particularly impactful for the Euro over the coming week with trader focus dominated by Greek affairs. However, German labour market data may still be of interest to those invested in the common currency. For the US Dollar, however, there will be several influential domestic data publications with the potential to provoke volatility. Unemployment Rate, Change in Non-Farm Payrolls, ISM Manufacturing and Consumer Confidence will all be of interest for those trading with the US asset. It is worth mentioning, however, that the US Dollar is likely to hold a position of relative strength as market sentiment continues to promote risk-averse trading.