Weekly Outlook: 2015, July 05 - 12

Skandinaviska Enskilda Banken - Long-Term Tech Outlook for EURUSD, USDJPY, AUDUSD and USDCAD

EURUSD: "The market has distanced a long-term overstretch and support at a lower trendline, both likely restricting the maneuverable area below in the short-term timeframe perspective. Should a recent 1.1468 high be taken out. there would be an increased possibility for correctional extension towards 1.1640\1.1830 or even 1.2040 before (down) trend forming forces regains the initiative again."

USDJPY: "The stretch is after all having some impact since the market failed to make further upside progress last month. The monthly candle printed may look insignificant at first sight, but it's a potential bearish prelude, but for it to bite, time spent below 122 is needed - then with a short- medium* term aim at 118.50/115.55."

AUDUSD: "From a long-term technical point of view not much changed last month. The descending yearly exponentially weighted moving average band (0.8130\0.8500) should continue to cap any attempt to rally the market. Loss of support at 0.7540 would target 0.7010 next."

USDCAD: "An inter-month dip was well responded to last month. Conditions remain bullishly convincing and below 1.30 there is no long-term stretch, so upside medium-term extension should be expected over summer, more after the recent break through short-term resistance at 1.2563. Gains through 1.3070 would target 1.3410\70 next. Loss of medium-term support at 1.1920 would however be reason to review a bullish stance."

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Deutsche Bank About Before And After The Greek Referendum - strong pressure on the Greek economy irrespective of this weekend's referendum:

Sunday’s Greek referendum appears too close to call but irrespective of the outcome there is unlikely to be an immediate resolution to the crisis the next day, says Deutsche Bank.

"A "yes" vote would be significantly more likely to lead to a quicker agreement with the creditors, but not without risks," DB argues.

"A “no” vote would open a wider range of possibilities. This notwithstanding, any agreement would likely require change that leads to a re-building of trust between Greece and its creditors," DB adds.

"Ultimately, the continued strong pressure on the Greek economy and the government's weak cash position will remain important catalysts for future developments, irrespective of this weekend's referendum," DB projects.

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Greece has been left front and center, with safe haven currencies riding higher and commodity currencies lower. The climax is still ahead of us. The week commences with the Greek referendum but there are other important events as well: US ISM Non-Manufacturing PMI, the FOMC Meeting Minutes, rate decisions in Australia and the UK and more. These are the major Forex events for the coming week. Join us as we explore these main market-movers.

The Greek crisis has dominated the news. The situation deteriorated as talks broke down. Banks are closed, the country failed to pay the IMF and all eyes are now on the referendum on Sunday, where polls show a close race. However, this is far from being the end of the story, especially as we learned that the IMF supports debt restructuring. While Greece is only 2% of the euro-zone economies, the political implications are huge. For the euro, the reaction was mixed: a Sunday gap was followed by a rally (for various reasons), but this was eventually eroded.

Elsewhere, the US Non-Farm Payrolls showed the economy created 223,000 positions in June but the downwards revisions, disappointing wages and the low participation rate left a bad taste. This may slow the pace of rate hikes, but the first one could come still come in September. It also depends on Greece. Commodity currencies suffered with China: AUD/USD reached a 6 year low and also the kiwi and CAD suffered. Sterling stood relatively strong thanks to good positive UK data.

1. Greek Bailout Vote: Sunday. Sunday. Exit polls expected in the European afternoon, well before markets open, with full results later on. The referendum, now dubbed #Greferendum, has been announced by Greek PM Alexis Tsipras on June 26th and is on the creditors’ proposal that was described by Greece as “take it or leave it”. The Greek government rejected it and calls for a vote against it. It is unclear if this proposal is still on the table. Some European leaders have described it as a vote on euro-zone membership. What’s clear is that it is a vote on the current government’s future. A Yes vote, which is more likely due to the deteriorating situation in Greece, will likely result in a relief rally, as it opens the door to a new government that will accept whatever it’s told, but it’s unclear what government that will be. A No vote complicates the situation and could result in a big fall for the euro. And if the vote is very close, it adds another level of complication The referendum is one climax, but the Greek crisis is set to accompany us throughout the week. This is especially true as the creditors are now divided on debt restructuring.
2. US ISM Non-Manufacturing PMI: Monday, 14:00. Service sector activity slowed more than expected in May. The non-manufacturing purchasing manager’s index fell to 55.7 compared to 57.8 posted in April. Analysts expected a reading of 57.1. The New Orders Index came 1.3 points lower than 59.2 registered in April. The Employment Index fell 1.4 points to 55.3. Overall, the reading still indicated expansion and respondents were mostly positive about business conditions outlook on economic growth.
3. Australia rate decision: Tuesday, 4:30. The Reserve Bank of Australia kept its official cash rate on hold at 2.0% in June, following a 0.25% cut in May and a 0.25% cut in February. Economists forecast another 25 basis points cut in August following disappointing economic data such as subdued consumer spending and poor business investment, downgrading economic growth forecast. However, the Australian economy had continued to grow at a slower than expected pace. The RBA awaits further financial data before deciding on another rate cut.
4. US Trade Balance: Tuesday, 12:30. US trade contracted 10% in April, reaching $40.9 billion compared to a revised reading of $50.6 billion in March. Exports edged up to $189.9 billion in April from $188.0 billion in March, and manufactured advanced to almost $2 billion. Imports declined to $230.8 billion in April from $238.6 billion in March, including consumer goods and services.
5. US FOMC Meeting Minutes: Wednesday, 18:00. These are the minutes of the June decision, in which the Fed published a somewhat lower dot plot. Given the generally dovish tone of that decision and the dovish composition of the voting members, it will be interesting to see if somebody wanted a rate hike already in June. In addition, worries about Greece (even though somewhat outdated given the recent events), the state of inflation and other topics will be interesting to watch.
6. Australian employment data: Thursday, 1:30. Australia’s job market improved in June with a bigger than expected jobs gain of 42,000, pushing unemployment rate down to 6% from a revised 6.1% in May. The recent rise in labor force was mainly due to part-time employment increasing by 29,800 while full-time addition was 15,900. Nevertheless, the figure was much higher than the 12,100 gain anticipated by analysts. The participation rate, however, remains unchanged at 64.7%. Analysts believe the unemployment rate will rise in the coming months due to subdued economic growth.
7. UK Rate decision: Thursday, 11:00. The Bank of England maintained the ultra-low rates at 0.50%, and kept its bond-buying stimulus program unchanged at £375bn. The Bank stated it intends to raise rates in the middle of next years after 6 years of ultra-low rates. However, in light of positive consumer and housing data, economists believe a rate hike will be in order in the first half of 2016 but much will depend on future economic growth data.
8. Canadian employment data: Friday, 12:30. The Canadian labor market rebounded slightly in May after a job contraction of 19,700 in April. May’s job numbers show a job creation of around 59K positions, although, nearly half are part-time. Economists point out that the job growth is actually weak, barely keeping up with the number of people entering the workforce. The unemployment rate remained at 6.8%, up from 6.6 per cent last October.

the source

EUR/USD had a wild week, moving on the deterioration of the crisis, but not always in the most straightforward manner. The new week begins with the Greek referendum and continues with data from Germany and France. Greece will certainly remains in the headlines throughout the week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

Greek summary: the announcement of the referendum was followed by the Eurogroup rejecting a short term extension, the ECB capping assistance to Greek banks and triggering capital controls. This escalation resulted in a Sunday gap for the euro, but it found ways to recover and even rally. We then had ongoing negotiations, the eventual default of Greece to the IMF, more offers as both sides stopped talking and awaited the Greferendum, the IMF came out suggesting debt restructuring. For the latest, see: Greek crisis – all the updates in one place
In other news, euro-zone inflation slowed to 0.2% as expected and PMIs also came out within expectations. The US gained 223K jobs in June, slightly below expectations but revisions were negative and the bigger disappointment came from wages. Nevertheless, the Fed seems to be on track for a hike in September, but Greece is having a growing impact also on Yellen.

1. Greek referendum: Sunday. Exit polls expected in the European afternoon, well before markets open, with full results later on. The referendum, now dubbed #Greferendum, has been announced by Greek PM Alexis Tsipras on June 26th and is on the creditors’ proposal that was described by Greece as “take it or leave it”. The Greek government rejected it and calls for a vote against it. It is unclear if this proposal is still on the table. Some European leaders have described it as a vote on euro-zone membership. What’s clear is that it is a vote on the current government’s future. A Yes vote, which is more likely due to the deteriorating situation in Greece, will likely result in a relief rally, as it opens the door to a new government that will accept whatever it’s told. A No vote complicates the situation and could result in a big fall for the euro. The referendum is one climax, but the Greek crisis is set to accompany us throughout the week. Polls look too close to call.
2. German Factory Orders: Monday, 6:00. Europe’s powerhouse has seen a rise of 1.4% in April, better than expected. Despite usually being a volatile figure, this indicator has an impact. No change is expected now.
3. Retail PMI: Monday, 8:10. Markit’s measure for the retail sector finally edged up to the growth zone. It topped 50 points in May and hit 51.4 points. A similar number is on the cards for May.
4. Sentix Investor Confidence: Monday, 8:30. This survey of 2000 analysts and investors fell for the second time in June and fell to 17.1 points, below expectation. Nevertheless, it remained in positive territory, reflecting optimism. A score of 15.6 points is on the cards now.
5. German Industrial Production: Tuesday, 6:00. As with factory orders, also industrial output was good in April, advancing 0.9% and enjoying an upwards revision. A smaller change is on the cards now: +0.1%.
6. French Trade Balance: Tuesday, 6:45. The continent’s second largest economy has seen its trade deficits shrinking from the highs. In April, it reached a level of 3 billion euros, the lowest since 2009. A similar number is on the cards now: a deficit of 3.3 billion.
7. German Trade Balance: Thursday, 6:00. Contrary to France, Germany enjoys surpluses in the euro era. This surplus reached 22.3 billion euros in April, higher than expected and the highest so far this year. For May, a surplus of 20.6 billion is expected.
8. French Industrial Production: Friday, 6:45. In the past two months, France reported a contraction in the most recent industrial output data, but these were countered by positive revisions. For April, production fell by 0.9%. A bounce back is on the cards now: +0.5%.

the source

The June ISM non-manufacturing PMI likely bounced back to 56.6 after falling to 55.7 in May. "The June ISM non-manufacturing PMI likely rebounded in June to 56.6 after hitting a more than one-year low of 55.7 in May. Other service-sector surveys suggest that the sharp correction in May was a one-off event. Our projection implies that the ISM activity index averaged 56.7 in Q2, unchanged from Q1. As we anticipate stronger growth in the second quarter, we see upside risk to our expected June rebound in services activity."

The May international trade deficit is expected to widen modestly to $42.4 billion from $40.9 billion in April. "The trade deficit likely widened by roughly $1.5bn to $42.4bn in May. The deficit plunged in April to more normal levels as the Q1 data were distorted by the West Coast port disruptions. We expect the May deficit to reflect a rise in exports, led by industrial supplies and capital goods."

The June FOMC minutes discussion will likely center on timing of the first hike and the slow expected pace in the rate path. The minutes of the June FOMC meeting will be read for participants’ comments on how they assess progress towards the committee’s inflation and employment objectives, as this will determine the timing of the first rate hike expected later this year. Recall that the April 29 minutes noted that “many” thought it unlikely that the data would make a sufficient case for tightening in June. It would enhance the FOMC’s communication efforts with the markets by providing a bias for the intermeeting period ahead, without any commitment. Both the FOMC and market participants would then assess the incoming data in light of that bias. The developments in Greece will not doubt be cited as a risk to be carefully monitored but our sense is that Fed officials believe that the direct effects on the US will not be significant and the indirect effects through Europe and financial markets would not be of sufficient magnitude to cause a rethink of the Fed’s current expectations. We believe that the Fed would like, data permitting, to get the normalization process started this fall. Recent comments from Williams, Dudley and Powell suggest that a September lift-off remains in play."


the source

"A 'no' vote will be a risk-negative outcome that will fuel Grexit fears. EUR should fall, especially against the majors, while European G10 currencies should underperform the rest. Market visibility will indeed worsen significantly, however, given that it could take months before we know the ultimate fate of Greece. To the extent that this keeps the hopes of a deal alive markets may even return to their ‘holding pattern' after the initial sharp selloff. Indeed the greatest risk could lie in a ‘Yes’ and thus a back-firing of Tsipras and Varoufakis plan to gain greater leverage over its European creditors. Such an outcome could make for a highly volatile EUR/USD in thin trading Monday morning. In particular, should initial exit polls signal a ‘no’ vote (ie. in public protest) only to then be followed by a slow drift towards a ‘yes’ throughout the evening as each constituency is counted, EUR/USD price could easily catch traders wrong-footed."

'What we’re watching:

• EUR – Greece in focus. Sunday’s referendum outcome will be key in driving the EUR in the short-term. From a broader angle we expect rallies to remain a sell.
• USD – Yellen to speak, FOMC minutes. She plans to discuss the Fed’s outlook so we expect markets to pay close attention. We doubt she will deviate much from the Fed’s tone in the last statement, underscoring that the Fed is inching closer to a September rate hik.
• CHF – Policy outlook weighs. Regardless of unstable risk sentiment the CHF is likely to remain capped given the SNB’s aggressive policy stance.'

the source

USD: Neutral
"We see scope for USD to remain supported against most currencies in G10. Data over the past week has been strong, most notably consumer confidence. At the same time, the market has pushed back the timing of the first Fed hike due to uncertainty in Greece. We see scope for this to come forward on the back of a resolution in Greece in either direction, offering support to USD."

EUR: Bearish
"We believe there is little scope for EUR to rally, regardless of the outcome in Greece. A ‘No’ vote in the referendum is likely to lead to Greece exit from the euro over time. The ECB may well have to undertake aggressive action to stabilize markets, and the enhanced liquidity is likely to weigh on the currency. On the other hand, a ‘Yes’ vote without a credible plan for the future, but rather a ‘muddle through’ solution is likely to keep uncertainty high and reduce appetite for eurozone assets."

JPY: Bullish
"In an environment of soft risk appetite, we think that JPY is likely to be an outperformer. Higher volatility is likely to drive some repatriation flows as well, and we note that portfolio flows have turned more positive. JPY is the most overvalued G10 currency on a PPP basis, supporting our view that there is scope for strength. Stronger data mean the policy tone is changing, and we expect the currency to remain supported."

GBP: Neutral
"GBPUSD has weakened from Greek risks and weaker-than-expected manufacturing PMI; however, we still see strength in the more important services sector. In particular wages here appear to be picking up which has supported rate expectations in the UK and therefore GBP. We believe there is potential for GBPUSD to reach 1.60 but prefer buying on the crosses, in particular against the NOK where an accommodative central bank highlights the divergences between the two currencies."

CHF: Bearish
"The SNB announced that it intervened following the Greek referendum announcement. This suggests to us that the SNB is less worried about the level of EURCHF and intervened more on the anticipation of rapid CHF strength. While Greek risks remain, the rapid falls in EURCHF are likely to be limited. We wait for opportunities to buy USDCHF as longer term we will start to see the negative economic impact of the stronger currency."


the source

Summary

• The "no" camp appears to have won in Greece.
• A new deal will take more time than the Greek government is suggesting.
• ELA is unlikely to be extended immediately.
• The euro is set to open around a cent lower, but within the ranges seen a week ago.

It appears that a majority of Greek votes have been cast for rejecting the creditors' offer. The government campaigned for this result. Prime Minister Tsipras may find, however, that it has not strengthened his negotiating hand. To the contrary, the range of options has narrowed and the financial system is collapsing.

Tsipras has said he will go to Brussels and sign a revised deal within 24 hours. This is most unlikely. The second assistance program ended on June 30. A new one will have to be negotiated. This appears to require some parliaments, like Germany's, to authorize the negotiations. It is not only a function of time but desire. Judging from the IMF's report last week, without debt relief for Greece, the multilateral lender might not participate in a third program either.
The ECB reportedly will meet to discuss the Greek central bank's request for new ELA access. There is no reason to expect this to be forthcoming. The job of the ECB is not to support banks unconditionally. They need to be solvent. Bank can use a broader range of collateral in ELA borrowings than on loans from the ECB. There has been a concern that Greek banks were exhausting their supply of such assets. The past week only exacerbated this pressure.

Without ELA funding, the image of monetary asphyxiation seems fitting (though it gives the Greek government no reason, then, to threaten to hold its breath). Banks are running out of cash. Some suggest that there are sufficient notes until around mid-week, but not one seems to know. The longer it persists, of course, the greater the economic impact. Business failures, in turn, worsen the quality of the Greek banks' loan book.

A 2-bln T-bill matures on Friday, July 10. To secure the funding, the government plans on auctioning bills on Wednesday. Greek banks are primary buyers of the government bills, simply to roll-over their current holdings. While this has been a fairly routine exercise, it could be more problematic this week. It is worth noting the auction as a potential event risk.

The results of the referendum do not necessarily mean that Greece will leave the monetary union. There are still many steps to get from here to there. The political commitment to the irreversible nature of monetary union should not be under-estimated.
The euro is set to open lower, but within the range seen a week ago. A "no" victory was largely anticipated. The key now is the response by policymakers. The creditors may be somewhat more divided now. Tsipras may feel bolder, but he is playing with the same, or fewer, cards now.


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