FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
Risk sentiment was mixed but still broadly stable in Asia, following an article in the Financial Times claiming that several Eurozone member states want private sector bondholders to take larger losses on their holdings of Greek bonds. It was also reported that some officials now believe that Greece’s funding needs will be higher over the coming three years than previously assumed. However, the comments are from unnamed officials and the banking sector has already priced in larger losses than currently assumed. The news is therefore unlikely to have a lasting impact on the euro or risk sentiment, especially as investor focus will swiftly shift to tomorrow’s EFSF vote in Germany and the decision on Greece’s next aid tranche, due next week. German Chancellor Merkel said yesterday that she would continue to help Greece to avoid a default, in line with comments by other officials. There appears little scope for Greece to not receive the next aid tranche. Although uncertainty lingers over the ratification of changes to the EFSF in Germany tomorrow, we see a negative outcome as extremely unlikely, especially as the latest press reports suggest that a majority is already largely secured. Fed Chairman Bernanke is due to deliver a speech entitled “Lessons from Emerging Market Economies on the Sources of Sustained Growth”. However it seems unlikely Bernanke will provide any new insights on monetary policy.
EUR
German Chancellor Merkel said her country ‘will do everything necessary’ for a strong Greece. We expect Greece to receive the next aid tranche and hence to avoid a default this year..
German Finance Minister Schaeuble rejected the idea of increasing the size of the EFSF on the grounds that it would mean some AAA-rated countries would lose their rating. However he conceded that, if necessary, the EFSF would be enhanced in the most efficient manner possible, although he did not go into specifics. Similarly the idea of leveraging the fund was dismissed. However such talk is clearly necessary in order not to risk tomorrow’s vote for the EFSF. As such it’s possible that such options may still be discussed as soon as the changes to the stability fund are ratified. Indeed the EU Commission said that no formal debate has started on leveraging EFSF funds.
The European Investment Bank said it has no plans to get involved in any special purpose vehicle designed to leverage the EFSF. This undermined the credibility of earlier speculation to the contrary, and led to some temporary euro downside.
The Greek Finance minister said the disbursement of next aid tranche will be discussed at Monday’s Eurogroup meeting and the cash would be made available some time in October. Juncker said the decision to disburse the cash will not be taken at Monday’s meeting.
The Greek parliament voted in favour of introducing a new household property tax which is intended to help bring Greece’s fiscal consolidation program back on track. The euro saw some minor upside on this, but it was short-lived.
GBP
CBI reported sales for September which fell to -15, in line with expectations. However, the expectations number saw a sharp decline, falling to a level of -14.
The Debt Management Office’s CEO Stheeman said there was good demand from overseas investors for 2052 Gilts, despite the long maturity.
TECHNICAL OUTLOOK
EURUSD 1.3356 support.
EURUSD BEARISH Break below 1.3356 would expose 1.3245. Near-term resistance is at 1.3669.
USDJPY BEARISH The pair is consolidating above 75.95; a move below which would expose the psychological level of 75.00. Resistance is at 77.00.
GBPUSD BEARISH Decline through 1.5526 would expose 1.5433. Initial resistance is at 1.5781.
USDCHF BULLISH Resistance is at 0.9058 ahead of key high of 0.9183. Near-term support lies at 0.8700.
AUDUSD BEARISH Support lies at 0.9777, a break through which would open 0.9622. Resistance is at 1.0080.
USDCAD BULLISH Initial resistance is at 1.0281, a rise through this level would expose 1.0386. Support lies at 1.0144.
EURCHF BULLISH Key resistance area is at 1.2346/1.2403, a break through this would expose 1.2646. Support lies at 1.2051.
EURGBP BEARISH Near-term support lies at 0.8632 and 0.8593. Resistance is at 0.8772.
EURJPY BEARISH Move below 102.85 would expose 101.94, the low from Sep 26. Resistance is at 105.33.
Please visit GCI’s Economic Calendar for a schedule of market news and events.
