Euro analysis from Credit Agricole
The impact of the Eurogroup's failure to achieve a Greek settlement over the weekend will be temporarily supplanted as investors turn their attention towards tomorrow's FOMC announcement. We remain USD bulls as the FOMC should strike a more constructive tone raising rate hike expectations. Latest soft US data have not changed our opinion.
To the contrary,our call remains for Fed lift-off in September with a bias towards further FOMC front-loading. Such front loading behaviour post-FOMC should push USD funding costs higher thereby dragging EUR/USD lower. Even USD/JPY should be 'pulled off the side-lines' after Kuroda's overnight clarification to see the pair re-test and then break 124.0 in the week ahead.
Returning to the Eurozone and the stakes surrounding the June 18 EMU finance ministers are now even higher. With many acknowledging Greece to now hold the superior bargaining position, investors will be looking for further potential creditor concessions this week to stave off fears of a default.
Are such concessions realistic? 'Yes' would be our answer and thus the probability of a EUR relief-rally remains high. Howeverthose bearish EUR investors with all but the shortest outlooks need not be overly worried, as such a relief-rally would likely trigger renewed selling.
Indeed we envisage such selling could quickly reemerge before 1.15 in EUR/USD and 1.30 in EUR/JPY.
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