Euro to Look Past German CPI, Focus on Greece Funding Woes

Talking Points:

Euro to Look Beyond German CPI, Focus on Greece Developments
Aussie, NZ Dollars Drop Amid Commodities-Driven Risk Aversion
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The preliminary set of March’s German CPI figures headlines the economic calendar in European hours. The benchmark year-on-year inflation rate is expected to register at 0.3 percent, rising for a second consecutive month. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook.

Rather, the single currency ought to be far more interested in Greece-related news flow. The government of Prime Minister Alexis Tsipras submitted a list of proposed reforms that it hopes will unlock the next round of bailout funding on Friday. The so-called “institutions” representing Greece’s creditors – the EU, the ECB and the IMF – began to evaluate the plan over the weekend, with a decision expected later today. Athens faces €5.8 billion in maturing debt this month in addition to the on-going expense of running the country.

Investors fear that if external funding is not secured, a cash crunch and subsequent default may lead to the country’s exit from the Eurozone. Such an outcome would be unprecedented, carrying with as-yet unknown implications for the financial markets at large. Avoiding that trajectory with an accord that keeps Greece within the currency bloc is likely to prove supportive for risk appetite, boosting high-yielding FX and weighing on the safe-haven Japanese Yen. Needless to say, failing to reach a deal stands to produce the opposite response.

Both sides of the negotiation are ultimately interested in a deal. Greek officials surely realize that sticking to their campaign promise of ending austerity at the cost of disorderly redenomination will probably compound the country’s economic woes and likely cost them their jobs. Meanwhile, EU and IMF officials no doubt prefer to avoid a “Grexit” scenario for fear of the precedent it may establish, particularly in larger countries with strong anti-austerity movements such as Spain. On balance, this means that some kind of accommodation is probably more likely than not.

The Australian and New Zealand Dollars underperformed in otherwise quiet overnight trade, falling as much as 0.4 percent each against their leading counterparts. The decline tracked a move lower on Australia’s benchmark S&P/ASX 200 stock index, pointing to risk aversion as the catalyst driving selling in the sentiment-linked currencies. The dour mood seems to have originated in softer oil and iron ore prices. Indeed, shares in the energy and materials sectors proved weakest on the session.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

23:50

JPY

Industrial Production (MoM) (FEB P)

-3.4%

-1.9%

3.7%

23:50

JPY

Industrial Production (YoY) (FEB P)

-2.6%

-0.6%

-2.8%

European Session

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CCY

EVENT

EXP

IMPACT