The U.S. dollar is under pressure today. There are many small triggers but the news stream itself is relatively mild. Ultimately, the inability to extend last week's momentum left the dollar bulls vulnerable. As we noted, that the momentum the dollar took place without the backing up of short-term U.S. interest rates to support the dusted-off divergence narrative. This as the Greek situation returned to chronic from acute and the Chinese stock markets stabilized.
The Greek parliament handily approved the new reform measures that remove the last hurdle to the negotiations of a third aid package in five years. There are three issues to note.
First, the banking measures that were approved allow for the bailing in of depositors and senior creditors starting January 1. Greek finance minister reaffirmed yesterday that the bank recapitalization, for which the new package will earmark 25 bln euros, will be done later this year. There has been much debate about this, and some observers have suggested that it could still prove to be causa belli for a Grexit. So many thought that a Grexit was imminent a couple weeks ago. Often the first reaction in such a situation is simply to push the forecast out in time rather than admit being wrong.
Second, the bills passed did not include ending the tax break for farmers, which is reportedly subject to widespread abuse. The official creditors had insisted on this. The failure to include it may have been driven by political considerations as it would have fueled more Syriza dissents. It is expected to be including in new measures later.
Third, Greece's next payment to the ECB is due on August 20. It does not have the funds. The idea is that if the new aid package can be agreed in early August, that would give the national parliaments time to approve it in time for the first tranche that would cover the ECB payment. The EU's Moscovici said that negotiations could stretch out a bit more. If this does happen, and provided there is progress, another bridge loan facility is possible.
