FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Greece’s parliament is expected to vote on the austerity package later today (expected around 1200 GMT), with the implementation vote due tomorrow. Although there is still considerable uncertainty over the vote, markets expect it to pass and authorities are now trying to push for the private sector to finalise its participation plans. Overnight sentiment was hurt somewhat by talk of further China tightening but at this stage we believe most global central banks are in a more cautious mode. Yesterday, global equities had a good day, with the S&P 500 closing up 1.3% and Asian exchanges are also doing well in overnight trading. In other news, France’s Finance Minister Lagarde was officially appointed IMF Managing Director, and is due to take up her new post on July 5. US consumer confidence came in significantly weaker than expected, falling to 58.5 in June (cons. 61.0). Yesterday, Dallas Fed President Fisher, a 2011 FOMC-voter and a well known hawk, did not seem to be in any hurry to tighten monetary policy. He said the current policy setting is ‘just about right’ but that some monetary accommodation would need to be removed once the economy picks up. He forecast that GDP growth would likely accelerate to an annualised rate of between 3 and 4% in the second half of the year. Ahead today, Canadian CPI is out, in addition to KoF leading indicator out of Switzerland.
EUR
The euro recovered much of its recent losses as optimism began to build ahead of Wednesday’s parliamentary vote in Greece. Headlines were few, but it was reported that one of the wavering members of Greece’s ruling party would now vote in favour of the austerity measures. The vote is expected to be completed at around 12:00 GMT.
ECB Executive Board member Stark said he sees an end to Greek aid after July if the austerity plan is not approved. He said there is only a ‘Plan A’ for Greece, and no alternative plan exists.
France’s Finance Minister Lagarde said Greece leaving the euro would be the worst case scenario and it must be avoided.
Italian newspaper Repubblica reported that Italy’s finance minister, Tremonti may quit over the national budget. The paper also says that ECB Executive Board member Bini Smaghi may replace him.
GBP
Several BoE policymakers testified before a parliamentary committee and the tone was very dovish. A resumption of the QE program was mentioned several times as a possible future policy option. Even MPC member Dale, who is a dissenting voter in the hawkish camp, did not rule out more QE. Governor King mentioned low wage pressures and an elevated spread in bank lending rates as justification for a continuation of the current policy of low rates.
Q1 GDP was revised down to +1.6% y/y from +1.8% y/y, after Q3 2010 GDP was downgraded. Ahead today, money supply data and other credit barometers will be out.
CAD
Canadian inflation numbers are due today and markets are looking for another 0.3%m/m jump to push the headline rate up to 3.3%. Core inflation is also expected to rise by 0.2% to 1.5%. These are indeed levels where the BoC may need to think about tightening again and we continue to expect CAD to find support on the crosses.
TECHNICAL OUTLOOK
USDJPY 81.33 Resistance
EURUSD NEUTRAL The move above 1.4358 has turned the model to neutral and exposed resistance at 1.4442. Initial support is at 1.4237.
USDJPY BULLISH The break above 81.06 has paved the way for gains towards 81.33 ahead of 81.77. Initial support lies at 80.66.
GBPUSD BEARISH Initial support is at 1.5911; potential for further weakness towards 1.5881. Resistance is at 1.6075.
USDCHF BEARISH Momentum is negative; focus on support at 0.8165, while resistance holds at 0.8439.
AUDUSD BEARISH Focus is on initial support at 1.0436, a move below which would open 1.0390. Resistance is at 1.0601.
USDCAD BULLISH A break above 0.9885 would open up 0.9913, the key level. Initial support is at 0.9771.
EURCHF BEARISH Watch support at 1.1806, breach of which would signal further losses towards 1.1721 and 1.1684. Initial resistance lies at 1.2000.
EURGBP BULLISH Clearance of 0.8976 has put focus on 0.9000 ahead of 0.9043. Support lies at 0.8928.
EURJPY NEUTRAL The recovery through 116.47 has opened up resistance at 116.87 ahead of 117.47. Initial support lies at 115.13.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
