Article Highlights

  • Greece and its creditors agree on the conditions for a third bailout deal
  • Euro Summit Statement on Greece released
  • BOE Credit Conditions Survey: secured lending for house purchase increased significantly in 2015 Q2
  • BOE Credit Conditions Survey: default rates on loans to households fell in 2015 Q2
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With no data on the docket, forex traders turned to the Greek drama and previous events for direction during today’s morning London forex session. What happened and how did it affect the major currencies?

Greece and its creditors finally agreed on the conditions that Greece must comply with in order to secure a third bailout loan. Take note that this is not a deal for the bailout itself, but a deal to get into a bailout deal (i.e. agree to these terms and we’ll open negotiations for another deal). And for negotiations for a bailout deal to start, Greece has to comply with the various conditions listed in the Euro Summit statement, which would probably be another source of more drama in the days and weeks ahead.

So how did this new development affect the euro? Well, the euro took a dive as the European market opened and before the deal was announced, as uncertainty and risk aversion prevailed in the markets. But when the deal was announced, the euro found some support but not enough buyers to push it higher, so it ranged for the rest of the forex session.

EUR/USD is down by 120 pips (-1.07%) to 1.1064, EUR/JPY is down by 103 pips (-0.75%) to 136.54, EUR/NZD is down by 87 pips (-0.53%) to 1.6506

The main benefactor of the Greek deal was probably the pound. The pound got a major boost as risk appetite returned to the markets, with the FTSE 100 up by 0.76% to 6,723.80 and U.K. 10-year bond yields up by 3.13% to 2.143%. It also probably helped that the Bank of England’s credit conditions survey yielded positive results, hinting at higher consumer spending.

GBP/USD is up by 26 pips (+0.17%) to 1.5573, GBP/CHF is up by 162 pips (+1.14%) to 1.4741, GBP/NZD is up by 148 pips (+0.65%) to 2.3211

As for the Greenback, it started the forex session by jumping higher as the European market priced-in last week’s hawkish comments from Federal Reserve Chairperson Janet Yellen. Specifically, Yellen said that “many of the fundamental factors underlying U.S. economic activity are solid and should lead to some pickup in the pace of economic growth in the coming years.” Yellen also said that “a drag on economic growth in recent years from changes in federal fiscal policies appears to have waned.” But the true clincher was her expectation that “it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy.”

After the initial jump, the bulls quickly lost interest as demand for the safe-haven currencies evaporated due to the increase in risk appetite brought about by the Greek deal.

USD/CHF is up by 95 pips (+1.01%) to 0.9471, USD/JPY is up by 39 pips (+0.32%) to 123.38, USD/CAD is up by 24 pips (+0.19%) to 1.2716

Another noticeable mover was the Loonie since the European market was probably pricing-in last week’s better-than-expected readings for Canada’s jobs data. Loonie pairs also jumped at the start of the forex session, but there was more follow-through when compared to the price action for Greenback pairs due to the Loonie being a high-yielding comdoll.

CAD/JPY is up by 18 pips (+0.19%) to 97.07, CAD/CHF is up by 61 pips (+0.84%) to 0.7446, NZD/CAD is down by 30 pips (-0.35%) to 0.8522

There was little demand for the other comdolls, though, with AUD/USD down by 27 pips (-0.36%) to 0.7429 and NZD/USD down by 37 pips (-0.55%) to 0.6701.

One feels a sense of loneliness when looking at the forex calendar for the upcoming afternoon London/morning U.S. session given that the only item lined up for release at 7:00 pm GMT is the U.S. federal budget balance (38.0B expected, -82.4B previous). This item is generally a non-mover, but it is expected to show a surplus, so the Greenback may find some buyers if the actual reading is within or beats expectations.

Also keep an eye out for any developments on the Greek drama. As of now, there are already signs of trouble in Greece. Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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