Euro May Hold Up Even if EU FinMins Fail on Greek Funding Deal

Talking Points:

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  Euro Selling to be Limited Even if EU FinMins Fail on Greek Funding Deal
  


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  Australian Dollar Down Alongside Bond Yields as RBA Rate Cut Bets Build
  


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Greece remains to the spotlight in European trading hours as Eurozone finance ministers continue to meet in Luxembourg. This time around, they will be joined by their counterparts of EU countries outside of the single currency bloc.

The markets appear fairly sanguine for now. Indeed, while yesterday’s meeting ended in deadlock between Athens and its creditors once again, Greek bond yields edged lower and the 1-year CDS spread narrowed to suggest worries about an adverse outcome eased.

A bit under two weeks remains until the expiry of the current bailout program and the scheduled repayment of €1.6 billion to the IMF. That seems to represent a sort of line in the sand for investors. In the interim, markets appear determined to hold out hope that an 11th hour compromise is possible.

With that in mind, a status-quo outcome to today’s sit-down seems unlikely to meaningfully punish the Euro. Needless to say, a clear-cut breakthrough paving the way for an accord or an official breakdown without room to maneuver further would probably trigger volatility on the up- or downside, respectively.

The Australian Dollar underperformed in overnight trade. The move tracked a drop in front-end bond yields, pointing to eroding RBA policy expectations as a possible catalyst for selling pressure. The markets now price in at least one rate cut over the coming 12 months.

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— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Euro May Hold Up Even if EU FinMins Fail on Greek Funding Deal