Cautious approach on EUR as markets eye Greece lateral sentiments, EZ inflation

The next scheduled Euro group meeting is on 11 May but we do not exclude the possibility of an intra-meeting Euro group, if one proves necessary. Greece aside, FX market participants are likely to re-focus on data this week.

Although the market response towards Greece turmoil remains fragile and the EUR seems to exhibit a high beta to political developments on either side. The cash difficulty for Greece are likely to stay in the coming weeks and the next potential official liabilities includes the payables of € 1.8 bln in wages and pensions at the end of April and the € 200 mln IMF interest payment on 1st May. Despite the invisible improvements between Greece and its European creditors, in last few trading sessions the EUR has been rather flexible.

We forecast HICP (harmonized index of consumer prices) inflation on Thursday to have edged up to 0% in April from -0.1% previously and core HICP inflation to have increased to 0.7% from 0.6%. Besides we expect German retail sales to moderate further (-0.2% versus consensus numbers 0.4% mom basis) and look for a further pick-up in money growth. Low inflation and subdued inflation expectations are expected to keep the ECB committed to successfully completing its QE program at least until September 2016, adding downward pressure to the EUR.

We restate our certainty in being short EURUSD at current levels as the cart is moving ahead of the horse, and we take a cautious view on further price depreciation over the near term.