The euro gave up brief gains this morning following comments from the German finance minister.
The currency made some headway after eurozone producer prices rose by more than expected in April, rising 0.9% over the previous month instead of the forecast 0.8%, and it was also given a lift following news of the Portuguese election (as the formation of a new government means that Lisbon is now able to implement the cuts and reforms specified by the EU-IMF bailout). However, any gains rapidly disappeared after German finance minister Wolfgang Schauble said that it was not certain that Greece would receive another bailout. The euro has made advances of late on the expectation that the EU and IMF were prepared to throw more money in Greece’s direction, so the possibility that Athens will have to rub along without additional funding could see the euro retrace some of its recent gains.
On an hourly basis, the euro was ‘oversold’ this morning, so some declines were to be expected, especially given the rapid rise seen following Friday’s abysmal non-farm payrolls news. Traders will be wary of movements in EUR/USD ahead of Thursday’s ECB interest rate decision. Although no change to the current rate of 1.25% is forecast, the press conference will provide useful clues about whether the ECB will raise rates in July. If Mr Trichet drops the ‘close vigilance’ bomb, then this could put upward pressure on EUR/USD.