FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar strengthened broadly during the Asia session after a weekend meeting of Eurozone finance ministers ended, unsurprisingly, without substantive agreement on how to solve the Greek debt crisis. The statement issued afterwards even suggested that the disbursement of the next quarterly instalment may have to wait until mid-July. EURUSD traded at 1.4218-1.4301, and USDJPY at 80.03-80.25.
On Friday, the S&P 500 closed up 0.3%. The University of Michigan consumer sentiment index fell to 71.8 (cons. 74.0) in early June from 74.3 in May. Our US economists note that the survey shows inflation expectations remained contained, with longer-term expectations edging up 0.1pt to 3.0% and short-term expectations down 0.1pt to 4.0%.
EUR
Eurozone finance ministers have concluded their weekend meeting, and are due to begin a second meeting later this morning. A statement issued on Sunday night made it clear that the next quarterly instalment of cash for Greece may be delayed until mid-July. The statement also implied, but did not say so explicitly, that t he release of the next tranche would be conditional on the Greek parliament approving the new package of austerity measures.
Debate has begun in the Greek parliament on the question of confidence in the government. A parliamentary vote on the matter is due to be held on Tuesday. Prime Minister Papandreou appealed again for national unity to avoid a “catastrophic” default. He also pledged to “move to a referendum on this country’s great reforms” in the Autumn.
Moody’s put Italy’s Aa2 rating on review for a possible downgrade, citing structural challenges which have existed for some time but which now “coexist with a scenario of rising interest rates and fragile market sentiment”. The review is expected to conclude within 90 days. The euro’s reaction to the news was quite muted, although the headlines did not hit the wires until after the London close.
Earlier on Friday the euro found support after German Chancellor Merkel appeared to back away from Germany’s position that private sector Greek bondholders should be encouraged to participate in a voluntary bond exchange – an arrangement that could see the maturities of their bonds extended by up to seven years. Instead she seemed to voice her support for a softer approach – a Vienna-like initiative of the sort advocated by France which would only seek to encourage bondholders to roll their existing positions as they mature. She described this model as a “good foundation” for a deal on voluntary restructuring. This softer approach would likely reduce the risk of a credit event being triggered, but it still risks prompting ratings agency downgrades. The euro got a boost from the apparent change of heart, although we note the comments themselves are open to interpretation.
JPY
Japan’s Finance Minister Noda revealed that a G7 conference call was held at the weekend, specifically to discuss Greece. Noda added that Tamaki, Japan’s Vice Finance Minister for International Affairs, was also present on the call. We note that Tamaki has operational control over the implementation of Japan’s FX intervention policy, and his presence suggests an awareness that a further escalation of the situation in Greece is likely to put additional downward pressure on USDJPY.
CHF
SNB Vice-Chairman Jordan referred to the vulnerabilities of the Swiss economy to the unfolding Eurozone debt crisis, noting that “via the exchange rate and demand for our exports we’re very much affected by these developments.” Nevertheless, he said he was “convinced” that “European institutions will take appropriate measures that will prevent an escalation of the crisis”.
TECHNICAL OUTLOOK
EURGBP 0.8879 resistance.
EURUSD BEARISH Focus on initial support at 1.4128, break below this level would expose 1.4074. Initial resistance lies at 1.4339.
USDJPY BEARISH Pressure on key support at 80.00, move below this level would confirm the bearish conditions and open 79.57 next. Initial resistance is at 80.68.
GBPUSD BEARISH Support is at 1.6079/58 area, scope for further weakness towards 1.6000. Resistance at 1.6226 holds.
USDCHF NEUTRAL Move below 0.8443 would expose 0.8348, while resistance at 0.8565 remains intact.
AUDUSD BEARISH The pair targets initial support at 1.0478, break of this level would expose 1.0441. Resistance lies at 1.0662.
USDCAD BULLISH While support at 0.9773 remains intact, focus on resistance at 0.9869 ahead of 0.9899.
EURCHF BEARISH Break of initial support at 1.1985 would signal further weakness towards 1.1947. Initial resistance lies at 1.2255.
EURGBP NEUTRAL Move above resistance at 0.8879 would trigger the way for gains to 0.8919, while support lies at 0.8771.
EURJPY BEARISH Key support lies at 113.42, break of this level would pave the way to 113.00. Resistance lies at 114.97.
SCHEDULE
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