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Smoother progress in Greece will not boost the EUR
Prospects for smoother Greek negotiations with creditors emerged overnight as Prime Minister Tsipras reshuffled his team that
handles talks with European and IMF lenders. The move is viewed as an effort to push Finance Minister Yanis Varoufakis –
often seen as brash - to a less active role in negotiations. Deputy Foreign Minister Tsakalotos is now coordinator of a new team
negotiating a reforms deal with lenders. While Greece likely has sufficient means to make payments due in May and June,
Greek funding needs skyrocket in July and August so the May 11 Eurogroup meeting will be a crucial date for progress on
negotiations with the EU. We think the EUR’s funding-currency status implies a changing reaction function to Greek headlines
as real yields drive the currency (see chart). A resolution to Greek uncertainty is likely to boost global risk appetite and weigh
on the EUR. For EURUSD, the most likely catalyst for a move lower to our 1.04 target will be stronger US data not eurozone
stress. We remain short EURUSD and expect the 1.09-1.10 area to continue to provide strong resistance.