Markets Focus On Greece

News and Events:

Today FX traders will have their sights squarely on events in Greece. Currency markets were relatively quiet, with marginal USD selling dominating activity. Optimism has been growing as a short term solution to the Greece debt crisis looks to be near (debt rollover agreement and vote on austerity) and leading to a broad revival in risk appetite. EURUSD witnessed a strong two day risk rally / short squeeze, pushing up to the 1.4400 border with marginal spread to the EURCHF, which climbed to 1.1959, perhaps illustrating the markets lingering fears. Watching the news last night as wide spread violent protests paralyzed Athens, it’s hard to see a parliamentary vote providing anything but a short-term solution. Interestingly, the originally May 2nd 2010 EU / IMF €110bn bailout package was expected to buy Greece the time to establish responsible spending cuts, yet here we are. We suspect that judging from Greece's historical less than stellar reputation on accounting diligent, social – political upheaval and examples such as Argentina, markets will fade any positive news when the smoke clears. That said, in the short term, Wall Street has a healthy session with S&P 500 up 1.29% and Asia regional indexes higher with the lone exception being Shanghai down marginally at -0.17% (chatter of further PBoC tightening making the rounds). Our global currency risk and carry barometers, AUDJPY, is banging into bearish trend ceilings at 85.92, a break would give us pause to reconsider risk correlated longs.

As for today’s Greek parliament MFTP vote, the floor will be open for voting at 8gmt and end at 1gmt. Despite rumors of deserters, we suspect that the vote will pass today (in our view the critical vote) and clear the way for a yes vote tomorrow. We also think that a yes vote today would be potentially enough assurance of fiscal austerity for the EU to release funds. However, there is significant complexity as to the letter of packages negotiated with the Troika, such as how to reach the fiscal austerity targets, which could plant seeds of doubt into the European markets, so the best result would be yes in both votes.

In Japan, the WSJ Takehiko Nakao looks to become the next top currency official. His reputation suggests that Takehiko will take a much harder stance on JPY appreciation and seems willing to utilize his authority to intervene in the currency markets. On the data front, Industrial production climbed 5.7% m/m, up from 1.6% prior and production projection for June and July are 5.5% and 0.5%. JPY has been depreciation recently due to easing risk concerns and US yields coming off. As with most markets, continued direction will be dependent on the events in Greece.

While traders watch European events, in the US, eroding economic data has taken a back seat. Yesterdays unexpected drop in Consumer Confidence to 58.5 vs. 61.0 exp follow Monday's series of weak data. Certified Fed hawk Dallas Fed President Fisher sounded surprisingly less hawkish in yesterday comments. He stated that the current monetary policy was 'just about right' and should the economic data show improvement then tightening would be the next step. We are very concerned about the current moderation occurring in the US economy (especially the lack of gain in employment) and believe the FOMC has been overly optimistic on their forecasts. Logically this would suggest that to us, that QE3 is closer than members are prepared to publicly admit. But we are pragmatic about the situation for now, it’s about events in Europe and effects on the Euro, but should we get a temporary patch this week, the focus will quickly shift to the US decaying state.

Today Key Issues:

• 09:30 GBP Consumer Credit Prior 0.5 bio Exp -0.4 Bio
• 09:30 GBP Mortgage approvals Prior 45.2K Exp 46.0K
• 09:30 GBP M4 Prior 0.1
• 10:00 EUR Consumer Confidence Prior -10 Exp -10
• 10:00 EUR Industrial Confidence Prior 3.9 Exp 2.5
• 10:30 CHF KOF Leading indicator Prior 2.3 Exp 2.25
• 13:00 EUR Greek vote outcome possibly released
• 13:30 CAD GDP Prior 0.3 Q/Q 2.8 Y/Y Exp -0.1 Q/Q 2.7 Y/Y
• 15:00 USD Pending Home Sales Prior -11.6 Exp +8.5
• 16:30 USD Obama Press conference

The Risk Today:

EurUsd Its now all about Greece and event risk is huge. This week 2 big figure rally was impressive but has stalled before 1.4442 (22nd June high & horizontal resistance). We should be looking to fade the move below the 1.4562 (bearish downtrend ceiling). With traders waiting for a further positive news flow from Greece, resistance should come into play at 1.4442 and 1.4562. Initial support should come into play at 1.4338 (intraday low) and 1.4254 (intraday low) then 1.4103 (27th June low) and 1.3970 (23rd June low).

GbpUsd Yesterday dovish testimony by BoE members failed to provide support for the sterling. Interesting, given the risk rally witnessed in other G10 pairs. This pair is sending nothing but bearish signals and traders are prepared to sell on rallies. The ease which the cable slipped through 1.6040 (200d MA) support gives scope for a move to minor support at 1.5911 (28th June low), 1.5822 (31st Jan low) then 1.5752 (2th Jan low). Should demand finally show-up, watch for 1.6045 (28th June high) to provide the first area of resistance, 1.6075 (23rd June high), minor psychological resistance at 1.6200 then lots of noise till 1.6232 (22nd June high).

UsdJpy Finally we are seeing some movement in this snooze fest but were not holding our breath for much more upside. Yesterday’s directional move above 80.98 (daily cloud base) puts us smack in cloud cover. The pull back in risk aversion and US yields have been the core driver and at least for yields we don’t see much more near term upside. We would be looking to reload shorts at 81.31. First support is located at 80.96 (daily cloud base) then 80.66 (28th June low), 80.00 (psychological level) then 79.70 (8th June low) and 79.57 (5th May lows). As for resistance 81.31 (2nd June high & daily cloud ceiling), 81.77 (31st May high) should keep upside capped.

UsdChf We remain bullish on the CHF, as the USDCHF continues to make short work of all-time lows. The USDCHF continues its bearish onslaught on all support and Monday corrective rally ended pretty much where it began. Yesterday’s base at 0.8318 failed to minor support and our expected test of 0.8300 was realized. The pair eventually paused at new all time lows at 0.8276. Initial support is now located at 0.8276 (28th June low) then we are going by the figures 0.8200 then 0.8100. Resistance is located at 0.8331 (Intraday high), 0.8439 (23rd June high) then 0.8551/53 (15th & 16th June high) and 0.8608 (bearish downtrend ceiling).