Euro starts the week on a soft note; pressure to remain

The EUR was pressured right from the start of trading this week though noticeably thinner market conditions than normal perhaps exaggerated the move.

Weekend Greek headlines suggested a still hard line from Germany with Chancellor Merkel suggesting that a Greek default would cause “chaos” while FinMin Schaeuble warned that if the plan was not passed tomorrow there would be “no more aid” and the stability of the entire Eurozone would be in danger.

We managed to slice through last week’s low but stalled just ahead of the 1.41 level versus the USD with other “risk currencies” dropping in tandem, notably gold testing below the 1,500 mark for the first time since May 20. All the action was over in the first 4 hours of trading, however, and we reverted to subdued range-trading after that with no data releases to impact activity.

Early on we saw New Zealand trade data for May which indicated a shrinking trade surplus to NZ$605 mln from an upwardly-revised NZ$1.148 bln. Exports were up 10% y/y but high oil prices took their toll on imports with at 17% increase y/y. Nevertheless, at least signs of annual growth suggest the economy is on the rebound from the February earthquake. NZD was generally lower but in tandem with other risk currencies.

Europe also has a relatively barren data slate with Sweden’s trade balance the only release to accompany a speech by ECB’s Stark though expect any short-squeeze in EUR to meet willing sellers given the planned Greek parliament fiscal plan ratification vote on Tuesday. The US session features personal income/spending and the PCE deflator along with the Dallas Fed manufacturing activity.

Despite the more positive tone for the EUR during the Asian and early European session on Friday (helped along by a better than expected German IFO survey), nerves about whether the newly-agreed EU/IMF Greek fiscal plan will be approved by the Greek parliament, together with concerns about possible downgrades to some Italian banks, ensured that the EUR finished last week on the defensive. In a general risk-off theme EURCHF hit a new all-time low, European banking stocks hit their lowest levels since November 2010 and EU periphery debt spreads widened resulting in the EUR sliding back towards Thursday’s low.

There were some positives on the US data front for a change but these did little to halt the wave of negative sentiment.  Durable goods orders rose a better than expected 1.9% in May, though the ex-transportation number was a less impressive +0.6% but it was the upward revision to last month’s data which perhaps had more impact. The final release of Q1 GDP showed a mild upward revision to 1.9% q/q from 1.8% but the data was unable to help Wall St which suffered from some disappointing earnings releases and influence from weak European bourses. The DJIA finished down 0.96%, S&P -1.17% and the Nasdaq -1.26%.

Economic Data Highlights

• US May Durable Goods Orders out at +1.9% m/m vs. 1.5% expected and revised -2.7% prior
• US May Durable Goods Orders Ex-transportation out at +0.6% m/m vs. 0.9% expected and revised -0.4% prior
• US Q1 Final GDP out at +1.9% q/q, as expected vs. +1.8% previously
• NZ may Trade Balance out at +NZ$605 mln vs. +NZ$1.0 bln expected and revised +NZ$1.148 bln prior
• UK Jun. Lloyds Business Barometer out at 36 vs. 14 prior
• UK Jun. Hometrack Housing Survey out at -0.1% m/m, -3.9% y/y vs. -0.1%/-3.7% prior resp.
• China May Industrial Profits YTD out at +27.9% y/y vs. +29.7% prior

Upcoming Economic Calendar Highlights
(All Times GMT)

(All Times GMT)

• EU ECB’s Stark to speak (0700)
• Sweden Trade Balance (0730)
• EU ECB’s Stark to speak (1030) (Different location)
• US Personal Income (1230)
• US Personal Spending (1230)
• US PCE Deflator (1230)
• US Dallas Fed Manufacturing Activity (1430)
• US Fed’s Kocherlakota to speak (1500)