EUR/USD: the impact of Greece

Elizaveta Belugina

In line with our expectations the euro was in demand in the past week. EUR/USD found support in the 1.0660/65 area and reached 1.0900.

The single currency was bought despite weaker-than-expected PMIs and concerns about Greece. Today, on Friday the nation is meeting its creditors. We don’t know yet the result of the negotiations, but the most likely scenario is the absence of an agreement. In our view, in such case the enthusiasm of the bulls will diminish and EUR/USD will be vulnerable for a decline to 1.0550. A move below 1.0500 seems very unlikely at this point, as the general belief of the market is that the situation will be somehow resolved – at least temporarily – in the coming months. On the contrary, if the Eurogroup meeting offers a breakthrough agreement, EUR/USD will jump towards 1.1050/1.1160, though the chance is small and Greece definitely won’t get the bailout money today, the default risk will remain anyway. There’s also a third possibility: Greece and creditors will agree on some points, but not on everything they need. In this case EUR/USD will continue fluctuating around 1.0700.

Next week pay attention to German and the euro area’s inflation figures on Wednesday and Thursday. On Friday German, French and Italian banks will be closed because of the Labor Day holiday. The pair’s dynamics will also depend on the results of the Fed’s meeting on Wednesday: as we don’t expect a June rate hike, we don’t expect much dollar-positive impact.

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