Prospects for a Greek deal are slipping away again as Athens’ Sunday night proposal was deemed inadequate by creditors. The talks lasted less than one hour with a EUR 2bn per year gap between the creditor and Greek demands. Markets will be watching for breakthroughs going into the Eurogroup meeting on Thursday. We argue that EURCHF is most correlated to Greek stress in G10 FX (see chart). We have noted that a Greek resolution will boost EURCHF but, by the same logic, this morning’s impasse has pushed the pair to its lowest level since June 3 at 1.0422. Now the Eurogroup meeting on 18 June is seen as the next, and possibly the last, chance for a deal. Given the disagreement between the two sides so far, whether a compromise will be reached by then is yet to be seen. Stability in eurozone sovereign yields is likely to encourage a return to EUR-funded carry exposure and would watch EUR crosses for renewed downside. Today ECB President Draghi holds his quarterly hearing before the European Parliament and our economists point out that this could be an opportunity to revisit his comments on bond market volatility from the 3 June press conference. Any softening of the ‘hands-off’ stance would help stabilize bund yields and should refocus FX markets on real rate differentials which are pointing to EURUSD downside.
(BNP Paribas)
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