The message beyond FX

The single currency slowly but surely closed the opening gap yesterday. But make no mistake, this does not mean that markets are ambivalent towards the fate of Greece; it’s more the nature of spot FX. Looking elsewhere, such as the FX options market, together with equities, peripheral bond markets (Spain, Italy) and also safe haven assets (e.g. German bonds), all the signs are that the concern remains. Today, Greece is expected not to repay the EUR 1.5bln owed to the IMF. This is not a default, in that it won’t trigger Greece’s credit rating moving to default status given that it’s not money owed on a bond, rather to an international institution. But it will be the first time a developed country has delayed a payment to the IMF, so it is remains pivotal moment in history.

Leaving aside Greece for the moment, we are in the last trading day of the month and quarter, so activity could be a little choppier than usual given the usual month and quarter end flows. The data calendar is relatively busy, with the release of final GDP data in the UK, together with various snippets of inflation data in the Eurozone, together with unemployment data. But these will be secondary to the overall market sentiment and flows, which makes directional moves that much harder to anticipate. We’re already seeing cable slightly offered at the start of European trading, down to the 1.57 level. In Asia, we’ve seen the Shanghai composite index recover, but volatility remains very high. The yen continues to stand out in this more risk averse environment, with no attempt to fill the opening gap lower on USDJPY yesterday. Yesterday, EURJPY saw the biggest one day range for more than 2 years (4th April 2013), but a much calmer tone is looking to prevail for the time being.