FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The Greek parliament voted in favour of a new package of austerity measures by 199 votes to 74 early on Monday morning. There were 27 abstentions. The euro got a moderate boost once the count got underway, but we saw no follow-through after the result was announced. In a sign of heightened political discord, 45 of the 300 lawmakers were expelled from their political parties for breaking ranks and voting against party lines. Safe passage of the legislation will go some way to alleviating market concerns after five Greek ministers resigned in protest on Friday. It should also provide a positive backdrop to the two upcoming meetings of Eurozone finance ministers on Feb. 15 and Feb. 20.
However, while this austerity vote is designed to help secure a second EU/IMF program forGreece, it is not in itself sufficient. The IMF has already said it also needs to see ‘near universal’ participation in any private sector debt restructuring before another round of funding can be considered. We doubt a purely voluntary approach will achieve a take-up approaching such levels, which is one reason why we maintain our bearish view on the euro. The private sector involvement negotiations have yet to reach a final conclusion and the IIF has not provided a recent update on the situation. With the prospect of a disorderly Greek default rising as March 20 approaches, investors may start to pull back from the recent rally, though we acknowledge that growth continues to surprise to the upside in general. Ahead this week, the focus will be on policymaker positions: the BoJ and Riksbank will hold policy meetings, while the Bank of England and Federal Reserve release their quarterly inflation report and meeting minutes, respectively. Macro activity surveys will also be released.
EUR
Greek Prime Minister Papademos warned ‘a disorderly default would throw the country into a disastrous adventure. It would create conditions of uncontrollable economic chaos and social eruption’.
S&P announced late on Friday that a ‘Selective Default’ rating would be applied toGreece if collective action clauses (CACs) were implemented directly. However, the agency also warned that if parliament passed legislation to the same effect, an outright ‘Default’ rating would be applied.
IIF Chief Dallara has urged Greek lawmakers to back reforms. He called on them to ‘understand what is at stake’ and also called on the ECB to accept a haircut, noting that ‘it is important that everyone shares a fair part of the burden’. Nonetheless he acknowledged time is running out ahead of the March 20 major bond redemption.
JPY
Japan’s GDP contracted quite sharply in Q4, after having rebounded in Q3. The market had been expecting a decline in economic output, but the -0.6% q/q print was well below the -0.3% q/q expected by consensus. This theoretically raises the risk of a monetary policy response from the BoJ at Tuesday’s policy decision. However, we note that the BoJ’s stock of short-dated assets purchased to date is still well below the targets set by previous bouts of easing. This means there is little urgency in raising these targets further, and the signalling effect of doing so would likely have little impact on the yen.
GBP
The Bank of England is due to release its quarterly inflation report on Wednesday. The inflation guidance may give a better understanding of policy direction in the coming months, while markets will also take note of the growth forecasts. OurUKeconomist expects the MPC will acknowledge that conditions have improved since the November report, but also that it stands ready to expand the QE programme should the outlook deteriorate again.
AUD
Several commercial banks inAustraliahave raised their lending rates in recent days, and another did so overnight. In principle, this provides a little more room for the RBA to ease further. The RBA decided to remain on hold last week, but our Australian economics team expects a 25bp rate cut in May – the final cut in the current easing cycle.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BULLISH Initial resistance is at 1.3322 ahead of 1.3386. Support lies at 1.3156.
USDJPY BULLISH Break above 77.81 would open 78.29, the Nov. 29 key high. Initial support is at 77.02.
GBPUSD BULLISH Resistance is at 1.5886, a move above which would open 1.5947. Key near-term support lies at 1.5730.
USDCHF NEUTRAL Key support lies at 0.9066; a decline through which would expose 0.8961. Resistance is at 0.9201 ahead of 0.9263.
AUDUSD BULLISH Momentum is positive; near-term resistance is at 1.0791 ahead of 1.0845. Support lies at 1.0640.
USDCAD BEARISH Initial support is at 0.9926, a break here would open the key low at 0.9892. Resistance is at 1.0052, a prior low.
EURCHF NEUTRAL Support lies at 1.2084, a move below which would expose 1.2053. Key near-term resistance is at 1.2133 ahead of 1.2149.
EURGBP BEARISH Initial support lies at 0.8330 ahead of 0.8283. Key resistance is at 0.8422.
SCHEDULE
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