Euro Holds Support Following Rising German Sentiment


EUR/USD tested Tuesday’s low at 1.0863, then bounced, but appears to be trading on the defensive again. EU’s Junker suggested Greece may be given more time, but, of course, time is not the problem, rather the seemingly intractable differences between Athens and Greece’s creditors is. The pair has fallen some 4% in seven of the last eight trading days after making a three-month peak 1.1486 on May-15. The continued lack of substantive progress in Greece’s bailout negotiations with its creditors looks likely to remain a drag on the euro, while Eurozone May confidence data due tomorrow should paint a similar picture to the sub-expectations May ZEW and PMI surveys of last week.

The European Central Bank left the Greek ELA and haircut unchanged. The ECB decided to keep the ceiling for ELA assistance to Greece unchanged at EUR 80.2 billion. The ECB is of the view that there is no reason to lift the lending cap and that deposit outflows remained stable in the previous week. So banks will maintain their buffer of around EUR 3 billion and the central bank will review the situation again next week.

French May consumer confidence fell to 93 from 94 in the previous month. Still a high level, but confirming our view that the strong Q1 GDP numbers don’t signal a sudden strengthening of the French economy, but were due to special factors, while the underlying trend remains weak. The breakdown shows that consumers have turned decidedly negative regarding future savings opportunities as well as capacity and the reading for future purchasing opportunities also dipped more into negative territory, even if the reading for the future personal financial situation remained steady.

German June GfK consumer confidence rose to 10.2 from 10.1. Expectations had been for a slight moderation, in line with developments in business confidence numbers, but the renewed improvement highlights again that this recovery is different from previously upturns and consumer, rather than export driven. The breakdown, which is available until May, shows that negative price expectations are receding. Economic confidence is picking up, as is the willingness to buy, despite the fact that income expectations eased slightly. All in all a strong number, that confirms that the German recovery remains on track.

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