Fuelled by a surprisingly strong core inflation rate in the euro zone (+0.9% yoy) and the hope of an imminent agreement on Greece the euro was able to appreciate on a broad basis yesterday. Tight stop order losses supported the appreciation further. However, the euro was able to defend most of its gains over night; which was also due to the rather dovish comments of the Fed Governor Lael Brainard, which caused notable USD losses. She pointed out that following the recently weaker data the Fed's positive outlook had become more uncertain. At the same time she mentioned the strong USD which in her view might delay a normalisation of monetary policy.



Yesterday was very characteristic for the development that could be witnessed repeatedly over the past few weeks: economic signals from the euro zone and the US are judged very differently on the FX market as far as their effects on the monetary policies are concerned. Despite all the difficulties in the euro zone EUR is able to benefit from the smallest of positive developments while USD often suffers set-backs despite a generally much more positive environment. Despite all the contrary developments the market seems to consider the ECB could reduce or end its QE program earlier than September 2016 - which is also what yesterday's rise of the yields for 10-year Bunds suggests.



For the time being Greece is likely to dominate the FX market. The market seems to have formed the expectation that over the next few hours or days the result of the negotiations of the past four months will have to become public.



"In this context the market might overvalue the repayment of IMF debt due on Friday, even though it would be of no immediate effect if Greece failed to meet this deadline. In the end the information emerging from the euro group is likely to best reflect the progress of the negotiations", according to Commerzbank.



And according to the head of the euro group Jeroen Dijsselbloem optimism is limited amongst them ("The creditors are a long way from reaching an agreement with Greece").