EUR: Relatively light data calendar but overall still bearish on fundamentals

After a few weeks of no market-moving headlines on Greece, media reports last week highlighted the IMF's unwillingness to support a new bailout program unless Greece's debt was deemed to be sustainable in the medium term (likely requiring debt relief commitments from euro area members) and it had a fully financed budget for the next 12 months. This is consistent with the view that although near-term risks of an exit have subsided, with the expected re-opening of the Greek stock market on Monday being another small step in the right direction, the medium-term risks remain high, particularly given the grim economic picture. 

Elsewhere, despite an uptick in euro area inflation last week, the increase may once again have been driven by technical factors, which are likely to be temporary. As a result, the euro area inflation outlook remains benign supporting the view of accommodative ECB policy at least until September 2016 and perhaps even beyond then. 

"We continue to expect further EUR depreciation on the basis of poor returns to capital and significant excess slack in the economy," notes Barclays.

On the data front in the coming week, the final reading of European PMIs is expected to remain broadly unchanged (Wednesday). Elsewhere, Italian IP (Wednesday) is expected to have contracted by 0.5% m/m in June, after rising sharply in May (+0.9%), and look for French IP (Friday) to decline 0.3% m/m in June, driven by the manufacturing and energy subcomponents. The early soft indicators for Q3 point to some rebalancing between private consumption and investment rather than an outright acceleration.