FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The Greek negotiations appear to be moving into the final stages as Eurogroup chairman Jean-Claude Juncker announced that a press conference is scheduled for 18.00CET on Thursday, after the Eurogroup meets. The Greek Finance Minister is due to travel to Brussels today to agree on terms, but he admitted that there are still outstanding issues ahead of today’s discussions. However, the Greek government noted that the only sticking point is on pension reform, which needs to be resolved by Greece‘s political parties. While progress has clearly been made, negotiations remain tense and further complications to the deal have emerged.
The ECB’s involvement in the debt swap remains a crucial element in the process and while we expect no major policy announcements in today’s meeting, Draghi’s press conference may provide new information on the ECB’s official stance. The timing of Juncker’s announcement suggests that the major announcements may come after the ECB meeting however. The euro’s price action suggests that all of the potential ‘good news’ out of the Eurozone, including PSI talks and the ECB’s involvement in the upcoming debt swap, have all been priced in. Risk assets have also rallied accordingly so there will be a lot of pressure on regional leaders to deliver the necessary results. Resolving the current quarter’s worth of Greece-related deliberations will buy the ECB significant time to focus more on policy calibration as it seeks to maintain the slightly better than expected growth momentum seen so far this year.
Elsewhere, the BoE is expected to extend its asset purchase program with consensus estimates of GBP50 bn. Our analysts are in line with consensus but stresses downside risks to that assessment given the moderation in data and gilt market imbalance concerns. Overnight EURUSD traded in a range 1.3216-1.3305, USDJPY 77.02-77.23.
EUR
The Greek negotiations appear to be moving into the final stages as Eurogroup chairman Jean-Claude Juncker announced that a press conference is scheduled for 18.00CET on Thursday. The ECB’s involvement in the debt swap remains a crucial element in the process and while we expect no major policy announcements, Draghi’s press conference may provide new information on the ECB’s official stance.
Releases of the draft agreement suggest the Greek government has agreed to a 20% cut in the minimum wage, delivering another 1.5% of GDP in cuts, further labour reform and bank recapitalisations. EUR300mln of the fiscal adjustment is expected to come from pensions savings, though this appears to the one outstanding issue between the main parties domestically.
A Greek government official said overnight that the country has 15 days to close a EUR300mln budget gap, but loan talks have concluded and most issues ‘have been covered’. Greek Finance Minister Venizelos said that he hoped ‘the Eurogroup meeting will convene and that it will take a positive decision for the programme’.
Some headlines from the negotiations started to hit the wires on Wednesday. A Eurozone official was quoted as saying that the Greek bond swap ‘sweeteners’ were likely to be EUR 30 bn in EFSF bonds, of maturity one or two years. On the issue of funding, the source said that the EFSF would raise the funds over a period of time. A Greek Government source cited a draft bailout memo to the IMF, saying that Greek GDP is seen as contracting by 4-5% in 2012.
German Deputy Finance Minister Steffen poured some cold water on the optimism however saying talks between Greece and private sector investors is still difficult and we have achieved worryingly little progress on Greece since 2010. He added that he wants to know from Greece what the result from the talks with creditors is. .
The Irish finance minister said that if the ECB offers discount on Greek bonds, it will strengthen Ireland‘s efforts for concessions .This is a new development and somewhat goes against the idea of Greek ring fencing. If the ECB decides against any involvement there are questions of seniority but ECB action is now also coming under question by the other bailed-out nations.LCH has reduced the additional margin requirement on some Ireland bonds to 25%; was 35% before
Bloomberg reported that France‘s debt will rise to 89.1% of GDP in 2012 including ESM – which would add EUR6.5 bn to it in 2012. The euro slipped slightly on this headline, though the move was marginal.
JPY
In figures released overnight, Machine Orders came in at -7.1% (cons. -5.0%). The annualised figure was at 6.3%, vs. cons. 8.5%. Consumer confidence came in at 40.0 (cons. 38.5).
Finance Minister Noda said JPY rise since last summer putting downward pressure on economy, government and BoJ need to work closely together.
BoJ Governor Shirakawa said that the central bank would be reviewing asset purchase figures by checking economy, though we note there are precious few sources of potential stimulus at this stage.
GBP
The Bank of England is expected to deliver an addition GBP50bn in the quantitative easing programme. In addition, industrial production and trade figures will also be released.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BULLISH Break above 1.3386 would open 1.3435. Support lies at 1.3089.
USDJPY BULLISH Next resistances are at 77.42 and 77.75. Initial support is at 76.71.
GBPUSD BULLISH Resistance is at 1.5947, a rally through which would open 1.6096. Support lies at 1.5789.
USDCHF NEUTRAL Pair is testing the key support area of 0.9115/066, a decline through which would expose 0.8961. Resistance is at 0.9263 ahead of 0.9339.
AUDUSD BULLISH Break above 1.0845 would expose 1.1007. Key support is at 1.0672.
USDCAD BEARISH Key support lies at 0.9892, a decline through this would signal scope for deeper pull back towards 0.9766/25. Resistance is at 1.0034.
EURCHF BEARISH Support lies at 1.2054, a move below which would expose 1.2032. Initial resistance is at 1.2133.
EURGBP BEARISH Initial support lies at 0.8330 ahead of 0.8283. Key resistance is at 0.8422.
EURJPY BULLISH Pressure is on 102.54; a rally through which would open 103.98. Support is at 100.38.
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