By John J Hardy, Head of FX Strategy / Saxo Bank
The market is waking up to fresh Greece worries as there was no further progress over the weekend in Brussels, and as the clock ticks ever louder into the end of this month in just over two weeks.
The latest hope is that this Thursday/Friday's Eurogroup meeting of finance ministers will break the logjam in negotiations, but should we really expect something here or will Tsipras and company take things to the wire ahead of the June 30 deadline for its next International Monetary Fund repayment? Or beyond?
Today's economic calendar provides a couple of second-tier data points from the US this week and not much else ahead of a Wednesday through Friday that offers three days more heavily populated with event risks. Wednesday's Federal Open Market Committee meeting is the most obvious highlight, though the market doesn't seem to be holding its breath in anticipation of anything dramatic from the Fed. This is possibly a justified stance, but it leaves the market very open to any surprises, particularly to the hawkish side. This will be a meeting with fresh Fed economic and policy projections and a press conference led by Fed chair Janet Yellen.
And as if the four central bank meetings weren't enough (FOMC Wednesday, SNB and Norges Bank Thursday and BoJ Friday), we also have RBA minutes tonight (dovish bias) and the Wednesday Bank of England minutes, which are really more like a BoE meeting due to the lack of guidance on actual BoE meeting days.
USD: USD picture is a bit mixed ahead of FOMC, as the market is unwilling to believe that the Fed wants to inject any drama at this juncture. The thinking is that Q2 data thus far looks encouraging, but no sufficiently so for the Fed to adjust expectations higher. I suspect risks are to the hawkish side, but more because of market complacency than because the statement/projections/Yellen will say anything aggressive.
EUR: Greece, Greece, Greece. The market is extremely tired of this issue and is unwilling to trade the headlines at this point judging from the price action. But look at implied volatilities in options and we can see that the market is looking for an explosive move once any kind of clarity emerges. The main initial focus will be on whether the smoke clears at the Thursday/Friday Eurogroup meeting of finance ministers.
GBP: Over-performing relative to interest rate spreads, against the US dollar - but let's see if the BoE has anything to say on Wednesday that moves the market's assessment of the BoE's thoughts on its first rate hike. With UK core inflation at 14-year lows, what's the rush?