Euro Currencies More Sensitive to Intensifying Greek Negotiations

The Swiss Franc rose against major currencies this morning on news of a second consecutive monthly increase in retail sales. After the pick up in consumer shopping swept past analyst analyst expectations, the USD/CHF, EUR/CHF and JPY/CHF fell in choppy trading before recovering.

Trading in the EUR/CHF is becoming more sensitive to Grexit negotiations as the risk of a Greek default increases. The Swiss franc is becoming the safe haven for currency traders over the Japanese yen, according to UBS. Fund managers are buying more Swiss Francs, reports Reuters, attracted by the current account surplus and falling consumer prices. The JPY/CHF hit a near five-month low of 0.7521 this morning.

The Euro has continued to dominate over most major currencies this month, creating a Grexit cushion of sorts if Greek were to leave the Euro. The Euro rose against the dollar on Friday as Greece said it expected to overcome the impasse in negotiations. This followed a Euro tumble earlier when German Chancellor Angela Merkel stated in a speech in Germany that the strong Euro was making EU reform difficult.

The weekend headlines, however, were selling an impending showdown in which Greece would leave the Euro. Despite the difficult negotiations, Greek Finance Minister Yanis Varoufakis told German newspaper Bild he does not expect Greece to exit the Euro.

10-year German bund yields will continue to have a larger impact on currency trading over the short term. Rising inflation was reported throughout the euro zone last week, culminating in Friday’s May inflation report showing a rise from 0.6% to 0.9%. Softer oil prices have also returned and if they persist, they will have some deflationary effect and place downward pressure on Euro bond prices, which spiked over 1% last week. Commerzbank, however, has offered another scenario in its weekly outlook, forecasting a further increase in yields to 1.25%.

EUR/CHF is Becoming More Sensitive to Greek Debt Negotiations

US Productivity  

Both US industrial and manufacturing production growth to be reported later today are expected to show US productivity is on an upswing.

The once much-awaited June hike in the US Federal funds rate will now pass with little fanfare this week. Considering the belated pick up in growth in the US economy together with low inflation, the FOMC is expected to leave interest rates unchanged this week and underscore the likelihood of a September rate hike. This scenario will be supported if an increase in inflation is reported this week.   

Despite good US May?? retail sales, the US 10-year bond yield remained below 2.4 on Friday, where it continues to trade before the US markets open.