Euro Pushes Through Resistance Following Dovish Yellen PR

EUR/USD rallied though early-June daily highs at 1.1379 and 1.1386, and above 1.1400 and could now target the May-15 four-month peak at 1.1466. The move reflected broader dollar weakness following the Fed’s less hawkish than expected FOMC statement and dot plot for future interest rates. Focus is back on Greece given risk of default and Grexit. Thursday’s Eurogroup meeting is unlikely to see any progress in bailout negotiations.

Eurozone labor costs rose 2.2% year over year in Q1 this year, a sharp acceleration from the 1.2% year over year in Q4 last year and the 0.7% year over year in Q1 2014. German labor cost increases remain markedly above the Eurozone average and the gap is likely to widen amid the wave of strikes and pay disputes Germany is seeing at the moment as the labor market remains tight. So a rebalancing of the Eurozone, by boosting domestic demand in Germany, but also lowering competitiveness in the medium term in Germany, rather than improving that in other countries.

Eurozone banks took EUR 73.8 billion in TLTRO. The ECB allotted EUR 73.8 billion in the fourth targeted long term loan operation, the lowest take up so far. Excess liquidity within the system has risen to EUR 332.5 billion, just short of the two year high of EUR 338.4 billion. The TLTROs are designed to revive lending by banks, but are said to be used to a large extent to roll over existing debt.

Eurogroup meeting not expected to bring progress on Greece, with Finance Ministers likely to conclude that the ball is firmly in Greece’s court, something the Greek government denies. A Greek audit committee this week concluded that Greece should not repay its debt as it is illegal, illegitimate and odious. German Chancellor Merkel said there is still the chance of a deal, but with hardened stances on both sides, it will seem almost like a miracle if an agreement can be found by the end of the month when the current bailout extension runs out.

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