NFP Disappoints Ahead of Greek Referendum

It’s been a volatile summer for currency traders thus far thanks to the ongoing Greek debt crisis.

The International Monetary Fund’s (IMF) June 30 deadline for Greece to pony up and repay €1.6 billion in loans passed with no payment being made, and no sign of a new bailout deal for the cash-strapped nation in sight. Instead, Greek Prime Minister Alexis Tsipras called a referendum on July 5 for Greeks to decide if the country should accept what his government regards as a raw deal offered by its creditors. If the majority of Greeks reject the current deal drafted by the IMF, European Commission, and the European Central Bank, it will almost certainly push the country closer to exiting the eurozone.

The debt talks have gone from hopeful optimism one day to fateful pessimism the next as the Greek government, elected earlier this year, enraged everyone sitting on the opposite side of the negotiation table.

Regardless of the outcome from the referendum, market participants will be tracking its development as the results will be known on the weekend. There will be a larger than usual price gap between the market’s close on Friday and the open of the Asian markets when the outcome of the referendum is known, and the market prices in this fundamental change.

Recent opinion polls show that the “Yes” and “No” votes are too close to call. Tsipras and the Finance Minister Yanis Varoufakis have threatened to quit if the pro-bailout vote is victorious. Both men are encouraging the Greek populace to reject the deal, arguing a successful “No” vote would make it easier for Europe to see the error of imposing harsh austerity measures on any eurozone member state. Meanwhile, European leaders have refused to continue to negotiate with Athens until the referendum has passed. In fact, it’s been reported Germany might refuse to negotiate with Tsipras’s government post-referendum.

The Euro’s Peaks and Valleys

The EUR/USD has fallen 1.03% on a weekly basis as the Greek debt talks dragged on. Prices reached almost 3% from high to low as some statements had traders expecting a decision ahead of the deadline. With the June 30 deadline behind us, the pair has bounced from 1.1278 as a weekly high to 1.0955 as the low. Current price levels after the U.S. employment report is 1.1088.

Meanwhile, U.S. employment data stumbled with a disappointing nonfarm payrolls (NFP) report. While the number of jobs added stateside last month were under expectations at 223,000, what hurt the USD’s performance more was the flagging labor participation rate: it hasn’t been as low as it is now since 1977. Employment has been the strongest component of the economy. The soft NFP depreciated the dollar across the board as the expectations of a rate hike before the end of year were understandably pushed back. The futures market is now pricing a first rate hike in January as opposed to September. This is the reaction after the jobs data, but it will change as more indicators including U.S. retail sales and trade balance figures are released.

What to Expect Next Week

Next week will be crucial for the USD as the Greek situation will be clearer with the outcome of the referendum. The aftermath, however, remains to be seen as the outcome will bring more challenges and new obstacles for the market to digest.

Also noteworthy, the Federal Reserve will publish the minutes from its June Federal Open Market Committee which will give traders further insight into the expectations of the central bank as a collective, and the opinions of some individual voting members.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza