Greece will remain the focus this week in the context of a very light data calendar and continued political uncertainty should weigh on the EUR.
Barclays Research forecasts further improvement in money growth to 4.9% y/y in April from 4.6% previously as a result of loose monetary policy. Preliminary May inflation numbers will start to come in for some individual countries on Friday. It also expects preliminary consumer prices in Italy and Spain to rise 0.2pp in May to +0.1% y/y (consensus: 0.1%) and -0.5% y/y (consensus: -0.6%), respectively.
The Greek political saga will remain in the spotlight, likely holding implications for FX markets and the outlook for the EUR. Negotiations remain highly uncertain at a time when the liquidity situation has deteriorated further, ahead of important month-end pension and salary payments and circa €1.7bn IMF payments in June (5, 12, 16 and 19 June).
Despite incremental progress on the negotiation front, key differences between the Greek government and the institutions remain, testing the market’s recent complacency around the likelihood of a Greek default and exit.
Barclays Research notes:
- Despite our view of a last-minute agreement, the dynamics of the necessary process remain highly uncertain. Even if a last-minute agreement was negotiated on a technical level, the implied U-turn on election promises would likely push the Greek government into some form of a political crisis, forcing a change in the current set up.
- Such political change could emerge through: 1) a government re-shuffle with more radical members exiting; 2) a referendum; or 3) snap elections.
- We think that the first scenario is the most likely, which would seem the least disruptive, allowing Greece to ‘return’ to a program agreement before end-June. Importantly, we think that the Eurogroup could find ways to bridge temporary funding gaps (e.g., by disbursing SMP profits or raising the T-bill ceiling), if it deemed the prospects for successfully finalizing program negotiations were good.
The material has been provided by InstaForex Company – www.instaforex.com