With Greek socialist PM Papadreou winning yesterday’s vote of confidence, Europe can breathe a temporary sign of relief. EURUSD popped 30 pips on the news to 1.4436, but then slipped to 1.4346 as the thin margin of victory (155 votes in 300 seat parliament) concerned traders and liquidation of speculative longs. Not to mention the thousands of Greek protestors demonstrating outside parliament, illustrating the fact that while the government survived, there still needs to be a vote for the proposed austerity package in order for Europe to participate in further bailouts. Greek PM Papadreou attempted to calm growing convergence that local politicians will not have the political will to push through the strict spending cuts by say “there’s a plan, roadmap for Greece” and that Greece had the “support of Europe.” Judging from the look of things, Traders seem to have forgotten reality and shifted back into risk correlated trades.
US equity markets were higher with S&P up 1.34% and NASDAQ 2.1%. CDS prices eased slightly, with Greece obviously seeing the greatest drop. Asia regional indices followed New York’s direction with risk appetite across assets broadly supported. In the short term, it seems that the temporary patch of prospect of a EU / IMF /ECB Greek bailout will keep FX risk sentiment bid, however, the boost the EUR receives for this type of superficial headlines are becoming less and less. The old taboo of discussing the abandonment of EUR, has been shred and its well understood that the current EU structure is unsustainable. The only question remaining is what the permeate fix will look like. That said, we are geared more toward short term trading and if the markets seem momentarily satisfied with the vote, we are not going to get in the way (but ride the intraday trend).
With the Greek confidence vote barrier jumped, trades will be focused on the ability of the Greek parliament to pass the current budget cuts by the end of the month and therefore locking in more aid. We suspect that politicians (remember the EU was create by business and sold to civil servants) will push this result through and will EUR / risk positive. Events derived from Central banks, will proved traders with focus today.
In the UK the BoE minutes are expected to revel a 7-2 result, 8-1 for QE. With Sentance gone, we should only see Dale and Weale lean towards a rate increase and Posen asking for further easing. Overall balance of power has clearly shifted back to the dovish side of the isle. BoE MPC Tucker stated that his decision was “finely balanced” suggesting that further QE had not been ruled out and rate hikes should not be expected near term. “Because of the mess the economy and the world financial system got into, there is the most extraordinary rebalancing of our economy under way and it is obviously painful for some regions in particular and lots of households and firms.” Given the lack concern over the inflation levels and mounting evidence that the UK economy is shifting into a lower gear, the sterling seem susceptible to further selling.
In Norway, Norges Bank expected to keep policy rate unchanged today at 2.25%. We don’t see any adjustment until fall of this year as data has not significantly shifted from official forecasts and mounting headwind global will keep banker cautions. The FOMC holds its latest monetary policy meeting this Wednesday, but it’s universally expected that there will be no change in fund funds rate. However, we suspect that the FOMC will finally make the official announcement ending QE2 this month and the FOMC will clearly state that there will be no erosion in the current size of their balance sheet. Proceeds from maturing MBS and Treasury securities will be reinvested for the foreseeable future. The other issue to watch out for will be in press conference if Chairman Bernanke mentioned any prospects for QE3. Overall, given the lack of result from the last two rounds and fragile but holding recovery, recent comments from members have suggested that the bar has been set very high for further easing (although tightening is a long, long way off).
08:00 NOK Unemployment rate (AKU) (Apr) 3.30% exp
08:30 GBP BoE Minutes
09:00 EUR Industrial New Orders nsa (Apr)
09:00 CHF ZEW Survey (Expectations) (Jun)
12:00 NOK Norwegian Deposit Rates 2.25% exp
14:00 EUR Consumer Confidence (Jun A) index
16:30 EUR ECB’s Trichet and BoE’s King to Speak
16:30 USD FOMC Rate Decision % 0.25% exp
18:15 USD Fed’s Bernanke Speaks
The Risk Today: EurUsd The optimism surrounding the survival of PM Papandreou Greek socialist party continues to translate in to EUR buying. The pair is preparing to test resistance at 1.4452 (15th June high) than a potential broader move to 1.4593 (bearish trend ceiling from 4th May). On the downside 1.4325 (bullish trend floor) should provide intraday support, then 1.4303 (21st June low) and 1.4127 (17th June Low). Given the lack of participation watch for the 1.4076 – 1.4593 range to remain intact.
GbpUsd The positive sentiment seen in the EUR seems to have faded from the cable. The strong reversal off 1.6079 (16th June low) stopped short of 1.6280 resistance. Demand should be located at 1.6142 (bullish trend floor from 17th June) then 1.6079 (16th June Low). There is plenty of room on the upside should we shift intraday trend. After 1.6280 is 1.6313 (50% retracement from 1.6547 to 1.6079) then 1.6442 (14th June high)
UsdJpy This pair continues to underwhelm us and ranges continue to compress after last Friday move lower. 79.80 to 82.23 (daily cloud base) looks to be the new range. First support is located at 80.00 (psychological level) then 79.70 (8th June low) and 79.57 (5th May lows). On the upside 80.68 (17th June high) then 81.33 (2nd June high) should keep upside capped.
UsdChf Techs still point to further deprecation but the CHF look to be taking a breather as market watch event in Europe. Further correction from 0.8550 (16th June high) suggests 0.8331 to 0.8556 range remains intact and makes downside look appealing. Light buying should start around 0.8348 (14th June low) then key support at 0.8300 (psychological level) should kick in. On the topside 0.8556 (38.2% retracement of 0.8951-0.8326) then (50.0% retracement of 0.8951-0.8326) should provide ample supply.
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