FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar had a mixed session. It managed to claw back some of Friday’s losses against the euro, assisted by euro-negative press commentary. Nevertheless, it was not all one-way dollar buying – NZDUSD set a post-floatation 26-year high after better than expected New Zealand trade data. EURUSD traded 1.4262-1.4334, USDJPY 80.72-81.02. On Friday, US data was mostly in line with consensus, although the University of Michigan consumer sentiment was stronger, rising to 74.3 in May (cons 72.4, prev. 72.4). Our analysts team note that both the short-term and long-term inflation components of the survey nudged lower. The G8 summit concluded with some interesting headlines on FX. French President Sarkozy said that the euro’s strength is “sometimes a problem”. Italian Prime Minister Berlusconi revealed that US President Obama wants a strong euro. Berlusconi added that “it’s right that our currency is strong, but not so strong as to impede our exports to the US”. Both the UK and the US are on holiday today.
EUR
An article in Saturday’s Der Spiegel claimed that the next quarterly EU/IMF/ECB report on Greece’s progress will conclude that all agreed fiscal targets have been missed. The IMF later described the article as “untrue” pointing out that discussions with Greek authorities are continuing and “are making good progress and are expected to conclude soon”. A spokesperson for the Greek government also refuted the article saying discussions “will be completed in the next few days”, adding “we have every reason to believe the report will be positive for the country”.
Discussions between Greek Prime Minister Papandreou and opposition parties broke up without reaching a political consensus on the question of further fiscal reforms. Juncker, Chairman of the Eurogroup of Finance Ministers, said two weeks ago that achieving political consensus in Greece on the way forward was a necessary condition for a continuation of European financial support.
ECB Executive board member Bini-Smaghi said that neither a restructuring nor a reprofiling of Greek debt could be done in an orderly way.
The governor of the Greek central bank, Provopoulos, said he remained “firmly against” debt restructuring as it could be “accompanied by contagion” and “would damage the credibility of the Greek sovereign and the euro itself.” Provopoulos who also sits on the ECB’s Governing Council described speculation about Greece leaving the Eurozone as “ridiculous”.
Sweden’s Finance Minister Borg said he opposed the idea of “reprofiling” Greek debt until a “very substantial surplus” is first achieved. On Saturday, Dutch Finance Minister De Jager said that a committee within the Eurogroup of Eurozone Finance Ministers has been tasked to research how a “soft” Greek debt reprofiling might be achieved and whether a credit event could be avoided in this case.
Ireland’s Transport Minister Varadkar became the first minister to raise the possibility that Ireland may not be able to return to bond markets in 2012, and that consequently an extension to the existing EU/IMF rescue program may be needed.
ECB Executive board member Stark said that Greece could realise up to ?300 bn from the privatisation of state assets. We note that this figure is equivalent to approximately 90% of Greece’s marketable debt outstanding.
German CPI came in perfectly in line with consensus at +2.3% y/y (prev. +2.4%). Our European economics team still expects the next ECB hike to come in July.
JPY
Over the weekend BoJ Governor Shirakawa acknowledged that Japan’s deteriorating fiscal health is “serious”. Referring to the BoJ’s active JGB-buying program, he said that the bank’s JGB holdings will approach a defined ceiling if bond purchases continue at the current pace. This is the first indication from Shirakawa that the BoJ’s existing program may not be sustainable in the long term. It may also partly explain his reluctance to accelerate the pace of monthly bond purchases, as doing so would shorten the time taken to reach the ceiling. We note however that this ceiling is self-imposed by the BoJ, and could in theory be raised.
On Friday, Fitch lowered the outlook on Japan’s rating to negative from stable, citing concerns over the country’s worsening fiscal position. Reacting to the news, Japan’s Deputy Chief Cabinet Secretary said Japan will continue to work on social security and fiscal reforms.
NZD
The NZD was boosted by an exceptionally strong trade surplus which came in at NZ$1.113 bn (cons. NZ$0.6bn), a new record high for a data series that goes back to 1951.
Shortly after NZDUSD set a record post-floatation high, New Zealand’s Prime Minister Key said that the government has concerns about the very high exchange rate, but that there have not been any discussions with the RBNZ about how to handle it. Key added however, that NZDUSD strength is largely the result of USD weakness, which suggests little immediate intervention risk.
TECHNICAL OUTLOOK
EURUSD NEUTRAL 1.4346 and 1.4125 mark the near-term directional triggers.
USDJPY BEARISH Momentum is negative; break of 80.64 would signal further losses towards 80.31 and 80.00. Initial resistance is at 81.42.
GBPUSD BULLISH Stalled in front of 1.6517, break of this level would confirm the bull trend and expose 1.6584. Support lies at 1.6379.
USDCHF BEARISH Bearish trend is intact; move below 0.8500 has exposed support at 0.8465. Resistance lies at 0.8663.
AUDUSD NEUTRAL Initial support is at 1.0609, while upside trigger is at 1.0794.
USDCAD BULLISH Resistance is at 0.9816, break above this level would open way for a climb to 0.9849. Near-term support lies at 0.9724.
EURCHF BEARISH The cross prints fresh lows; move below initial support at 1.2099 would expose 1.2000. Resistance is at 1.2256.
EURGBP BEARISH Focus is on initial support at 0.8611, break below this level would pave the way towards 0.8590. Near-term resistance is at 0.8717.
EURJPY BEARISH Support is at 114.47, scope for further losses towards 113.88. Resistance lies at 116.38.
SCHEDULE
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