Last Friday for the first time ever a developed economy missed a repayment to the IMF. As an alternative to a technical default, Greece requested to roll four payments into one for June 30th and hold further credit negotiations. We also saw the worst performance of German ‘safe-haven’ rates since the 2008 recession, and culminated in the worst three-day performance in US Treasuries since the ‘Taper Tantrum’.
Last week concluded with robust economic prints in both the Euro-area and the US; as Euro-area (CPI) inflation bounced to 0.3% after being -0.60% just 5 months prior, and US nonfarm payrolls broke higher to 280K in May and more encouragingly hourly earnings rose by 0.3%, which moved the year on year rate up from 2.2% to 2.3%, matching the upper end of the range that has been in place since 2009. The stronger than expected number brought the year to date job growth over the 1million job threshold, and was the 56th consecutive month of positive readings, a new record of continuous payroll gains.
US unemployment data
While the German bund certainly set the tone through the most of last week, the importance of the US unemployment data cannot be underestimated and leaves the door open for US monetary policy and ‘data dependency’ to drive EURUSD into the end of the year.
For me every new data point brings the US economy closer to a rate hiking cycle with my preference for 2 rate hikes prior to the end of the year the first coming in September followed by a further 0.25% hike in December. The initiation of the rate hiking schedule and improving US economy relative to the challenges in Europe in finding a solution for Greece and the expanding balance sheet from Quantitative Easing ultimately leads in my opining to investors and market participants “Queuing (Q) For (4) Parity” in the last quarter of 2015 (Q4).
Key milestones between spot today 1.1224 and parity are:
- 100 day moving average = 1.1062
- 38.2% Fibonacci retracement from the 16-Mar-15 low = 1.0800
- 16-Mar-15 low of 1.0458 (which is a 12 year low)
EURUSD Performance YTD