Activity data will play second fiddle to Greece this week. Greece’s ongoing financial difficulties will likely be highlighted this week and are likely to weigh on the EUR as well as broader risk sentiment. While negotiations with creditors are progressing, no formal agreement has been reached to allow any disbursement of the final EUR7.2bn tranche of aid under its existing bailout package. The country is now facing imminent financing pressure with EUR1.4bn of Treasury Bills due to mature on Wednesday and a EUR450mn payment due to the IMF on Thursday. In addition, deposit outflow continues to place the banking system under acute pressure with reports suggesting the ECB again increased the Emergency Liquidity Assistance (ELA) facility last week by EUR700mn.Barclays says in terms of data, they forecast the March euro area services and composite PMIs (Tuesday) to be confirmed at 54.3 and 54.1, respectively, in line with consensus. In Germany, factory orders (Wednesday) are likely to decline 0.2% m/m in February due to weak machinery orders (consensus: +1.5%) while industrial production is also likely to fall in the same month given lower vehicle and steel production (Barclays: -0.5% m/m; consensus: +0.1%). According to Barclays in their latest FX Quarterly, they continue to think that persistently low expected returns on capital and the ECB’s commitment to a long period of low (or negative) interest rates augur for a much lower EUR. The euro area’s large utilization gap implies that there is little return on capital expenditure, whereas low-for-longer rates will continue to drive an extension of EUR hedging activity among longer-term FX market participants and increased use of the currency as a funding vehicle by short-term participants. “we believe that the EUR has much further to go in its trend depreciation, albeit at a slower pace and with two-way risks attached”, added Barclays.
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