FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk aversion remained the main theme in Asian markets, mainly in reaction to falling global growth expectations and ongoing uncertainty with respect to Greece. Greek PM Papandreou is said to form a new cabinet today and will seek a vote of confidence from his socialist party in order to push through an austerity bill which is needed in order to receive the next EU/IMF aid trance. On a different note, ECB Governing Council member Wellink said that a doubling of the bailout fund could be needed in order to take into consideration contagion risk for Ireland and Portugal in the event of a new Greek aid package.
Ongoing political uncertainty in Greece and still no consensus with respect to a private sector involvement in a new bailout scheme is keeping demand for EUR-denominated assets low. Overnight, EURUSD traded 1.4191-1.4093 and USDJPY 81.93-80.85. Elsewhere weakening global growth momentum is also keeping the commodity sector under pressure which in turn will cap inflation expectations. Under above outlined conditions we keep a cautious stance on risk and anticipate further downside in pairs such as EURUSD or EURCHF.
EUR
Greek Prime Minister George Papandreou will form a new government on Thursday and seek a vote of confidence from his party. Initial press reports had suggested that he had resigned to make way for ‘national unity’ government but this was denied and the focus will now be on tomorrows vote. Reports suggested that the opposition demand a renegotiation of the terms of the bailout as a condition for forming a coalition but these requests were deemed to severe for the PM.
Irish Finance minister Noonan says the government plans to impose losses on senior bondholder in Anglo Irish, and that it has support form the IMF.
The Greek parliament started to discuss the austerity measures. Two of the ruling Pasok party members, have defected, including the Deputy PM so the balance is very tight now with a majority of 4 at the moment. The vote is not scheduled for another 2 weeks but many more euro negative headlines likely to come out over this period.
ECBs Liikanen said that a Vienna style package “would not likely be opposed” and voluntary measures are recommended. The ECB has softened slightly in recent days but we will need further compromise from both sides in order to get a resolution. ECB’s Constacio repeated the standard ECB line that they are against any sort of default with haircuts. He says a Vienna-style initiative could be ‘conceived’ but that any debt deal must avoid a credit event or rating agency downgrade.
ECB Governing Council member Wellink said that a doubling of the bailout fund could be needed in order to take into consideration contagion risk for Ireland and Portugal in the event of a new Greek aid package.
CHF
The SNB will decide on rates today. We expect them to keep the 3m Libor target rate unchanged at 0.25%. According to our economists and following the latest downward revision to ’12 GDP and CPI inflation forecasts by the State Secretariat for Economic Affairs earlier in the week the SNB is likely to revise accordingly.
At the same time this makes a case for them to keep a neutral monetary policy stance for now, in particular as monetary conditions have continued to tighten on the back of a stronger franc. As a result we expect the franc to remain driven by external factors such as risk sentiment.
As we expect risk aversion to be a key driver in the coming weeks the franc will likely stay in demand versus currencies such as the EUR.
TECHNICAL OUTLOOK
EURJPY 113.88 support
EURUSD BEARISH Sharp decline through 1.4248/1.4125 has turned the model bearish and exposed support at 1.4068 ahead of 1.4000. Resistance lies at 1.4300.
USDJPY NEUTRAL Move above 81.01 has exposed resistance at 81.26 ahead of 81.63. Support lies at 80.38.
GBPUSD BEARISH The pair pulled back through 1.6173 to put focus on 1.6132 ahead of 1.6058. Initial resistance is at 1.6383.
USDCHF NEUTRAL Break above 0.8547 has opened up 0.8639, while support lies at 0.8443.
AUDUSD BEARISH While resistance at 1.0726 holds, focus on support at 1.0510; break here would signal further losses towards 1.0441.
USDCAD BULLISH Sharp rise through 0.9772 has paved the way for gains towards 0.9829 and key level at 0.9852. Initial support lies at 0.9671.
EURCHF BEARISH Move below 1.2000 would open 1.1811. Initial resistance lies at 1.2126.
EURGBP NEUTRAL Support lies at 0.8697, while resistance at 0.8825 holds.
EURJPY BEARISH Momentum is negative; breach of 114.86/48 has signaled scope for weakness towards 113.88 and 113.42. Resistance lies at 116.47.
SCHEDULE
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