Despite Greece sliding closer to a default with every passing day, and a failure to agree any debt deal in yesterday’s meeting of eurozone finance ministers, the forex market is looking far from ruffled.
By Peter Martin
Friday, June 19, 2015
The euro has declined, as we might expect, but the movement is orderly, EUR/USD sliding a far-from-precipitous 0.37% in early trading on Friday to 1.1317.
The possibility of a Greek default, followed by a Greek exit from the euro, is real, one that was acknowledged for the first time by the Greek central bank yesterday, but the muted response of the financial markets suggests there is little to no panic about that contingency, reflective of a growing belief that exposure to Greece has been sufficiently minimised in advance of the crisis in order to mitigate the effects of the worst case scenario.
With less than two weeks remaining before Greece must repay €1.5 billion to the IMF, there is scant time available for a deal to be struck to release emergency funds and Eurogroup Chairman Jeroen Djisselboem’s comment yesterday that ‘no agreement is in sight’ illustrates how strong the deadlock has become. There are reports that billions of euros have been withdrawn from Greek banks by savers this week, which will further exacerbate the liquidity issue, and there is strong speculation that the introduction of capital controls to reduce the pace of withdrawals may be just around the corner, but there is still the glimmer of hope with heads of state and government from the eurozone set for an emergency meeting on Monday to discuss the Greece situation.
Canadian inflation picked up last month according to data released on Friday morning. The Canadian CPI increased 0.6% in May, just ahead of expectations, following a 0.1% drop in April. This takes the annual pace of inflation to 0.9%, up from the 0.8% recorded in the month prior. Much of May’s rise in prices was driven by volatile components, and the core CPI, which strips out food and energy prices, rose just 0.2% for the month. Judging by recent data, Canadian inflation is steadily increasing, but at a pace so moderate as to not pose any problems for the Bank of Canada and there is nothing in this report to suggest a change in monetary policy will be forthcoming soon.
In a similar vein, Canadian retail sales declined 0.1% in April, after surging in March (upwardly revised to +0.9% today from an originally-reported +0.7%). While April therefore looks like a soft month for the Canadian economy, we have seen signs of enough strength in May, such as a bullish labor force survey and burgeoning housing starts, to offset this weakness, with an overall effect of offering little to sway central bank policy from its current course. USD/CAD was up 0.26% at 1.2252 by 10.00am in New York.
The US economic calendar is thin today, meaning there are few alternative items to deflect attention from Greece and as we head into the trading void of the weekend — as a consequence, there is a risk that the market could be rattled with unease with such an important issue left unresolved. It could be an interesting afternoon to end the week.
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