Summer Risk Rally In Effect

News and Events:

Yesterday's successful vote on Greek austerity looks to have set the stage for a summer risk rally. The vote of 155 to 138 passage of the first part of the austerity plan was broadly positive for risk sentiment and risk correlated trades rallied across the board. EURUSD trading was volatile but despite some pre-vote excitement, the bullish sentiment has remained. EURUSD rallied to a June high of 1.4521 and EURCHF rose to 1.2095, indicating that the fears of EURO demise have subsided. AUD & NZD continue to trade on the growing optimism, with the AUDUSD climbing above 1.0720 and NZDUSD clearing 0.8300 to 0.8319, hitting new all time highs. AUDJPY moved above its bearish downtrend ceiling, indicating a broader interest in carry trades--we would be looking to dips, to build long positions. In addition, the heavy USD selling (not helped by President Obama's calls for more stimulus), forced Asian central banks to step in for the first time in a while. Commodities got a lift as well, with wti crude climbing to and copper jumping 6. The second Greek vote to pass the legislation needed to begin yesterday's austerity package, takes place today.

Given the outcome of yesterday's vote, today's initiative contains much less risk. First of all, it seems the ruling socialists have the votes to push the bill though and secondly, even if the vote passes, most likely Greece would receive the EU bailout funds. On the release of the Greek results, EU officials were quick to praise, as EU Commission President Barroso and EU Council President Von Rompuy both stated that today, votes would all but clear the next tranche of cash to Greece. All in all, we are taking a very pragmatic approach to the current trading environment.

While we still see this bailout as merely a temporary solution and its only a matter of time before Greece and potentially Italy and/or Spain, face similar crisis; we are not going to stand in the way of the current optimism (no matter how deluded). After May 2nd2010's first Greece bailout, we heard similar grand announcements and praise, while this time there is much less grandstanding, there is a familiar feeling that EU officials have “solved” the problem.

And just like in 2010, there was a period risk accumulation when traders turned their attention to other issues. We suspect that this is the same scenario we are witnessing today. However, the whole world, from Chinese PM Wen Jiabao to Nebraskan ranchers, know that the current situation is totally unsustainable without a comprehensive solution. That said the French debt rollover proposal is gaining traction and support. Newswires are reporting that German Finance Minister Schaueble will meet with German banks to nail down a deal for private sector “voluntary” involvement. The involvement of Germany's institution will be a big step forward, but of course it all hinges on the credit agencies reaction. We suspect that eventually a deal will be reached, which will further fuel this risk rally.

On the economic data front, the light calendar will have trades monitoring events in Greece while enjoying the summer risk rally. For today, German Unemployment change, US initial Jobless claims and Chicago PMI will be the key data points, while Feds Bullard and US treasury Secretary Geithner and ex-President Clinton will participant in an Q&A session regarding the US economy.

Today Key Issues:

• 07:00 EUR ECB's Trichet Speaks
• 07:30 SEK Household Lending (May)
• 07:55 EUR GE Unemployment Rate sa (Jun)
• 08:00 NOK Retail sales - vol sa (May)
• 09:00 EUR Euro-Zone CPI Estimate (Jun)
• 11:00 EUR ECB's Coene Speaks
• 12:30 CAD GDP (Apr) m-o-m
• 12:30 USD Initial Jobless Claims (Jun-25) lvl
• 13:00 USD Treasury's Geithner Speaks
• 13:45 USD Chicago Purchasing Manager (Jun) index
• 17:00 USD Fed's Bullard and Hoenig Speak

The Risk Today:

EurUsd The positive vote out of Greece was a clear trigger for today’s risk rally. While we would still like to fade the move below the 1.4540 (bearish downtrend ceiling), the trade is looking increasingly challenging. A clear break will shift the pair into a bullish mode. With traders waiting for a further positive news flow from Europe today, resistance should come into play at 1.4540 and 1.4697 (7th June high) then 1.4940 (4th May high). Initial support should come into play at 1.4333 (29th June low) and 1.4103 (27th June low) and 1.3970 (23rd June low).

GbpUsd The risk rally picking up other currencies is failing to provide the cable with much support. The pair quickly gave back most of yesterday gains. This pair is sending nothing but bearish signals and traders are prepared to sell into rallies. The ease which the cable continues to slip through 1.6029 (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, 1.6119 (intraday high), minor psychological support at 1.6200 then lots of noise till 1.6232 (22nd June high

UsdJpy Finally we are saw some movement in this snooze-fest but were not holding our breath for much more upside. Tuesday directional move above 80.98 (daily cloud base) failed to hold and we quickly slipped down to 80.31. 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 80.89 (daily cloud base). First support is located at 80.21 (bullish uptrend floor) then 80.01 (8th June low & psychological level) then 79.70 (8th June low) and 79.57 (5th May lows). As for resistance 80.89, 81.31 (2nd June high), 81.77 (31st May high) should keep upside limited.

UsdChf The rally in USD was short lived as we had expected. We remain bullish on the CHF, as the USDCHF continues to make short work of all-time lows. Initial support is now located at 0.8306 (intraday low) then 0.8297 (29th June low) and finally 0.8276 (all time lows). Resistance is located at 0.8368 (29th June high), 0.8381(short term bearish channel) then 0.8551/53 (15th & 16th June high) and 0.8608 (long term bearish downtrend ceiling).