ECB Closer To Grexit, Fed Closer To September Hike
Growth Aces | Jun 29, 2015 07:51AM ET
GROWTHACES.COM Forex Trading Strategies
Pending Orders
EUR/USD: sell at 1.1180, target 1.0970, stop-loss 1.1250, risk factor ***
GBP/USD: sell at 1.5770, target 1.5500, stop-loss 1.5850, risk factor ***
USD/JPY: buy at 122.50, target 124.20, stop-loss 121.80, risk factor ***
USD/CHF: buy at 0.9280, target 0.9500, stop-loss 0.9195, risk factor ***
USD/CAD: buy at 1.2280, target 1.2460, stop-loss 1.2200, risk factor **
AUD/USD: sell at 0.7770, target 0.7580, stop-loss 0.7855, risk factor **
AUD/NZD: sell at 1.1295, target 1.1100, stop-loss 1.1350, risk factor **
EUR/USD: ECB Closer To Grexit, Fed Closer To September Hike
(sell at 1.1180)
- Greek Prime Minister Alexis Tsipras shocked markets after he decided to hold a referendum on bailout creditors' demands on July 5.
- Greece closed its banks and imposed capital controls on Sunday to check the growing strains on its financial system. Banks will be closed and the stock market shut all week, and there will be a daily 60 EUR limit on cash withdrawals from ATMs, which will reopen on Tuesday. Capital controls are likely to last for many months at least. The failure to reach a deal with creditors leaves Greece set to default on EUR 1.6 billion of loans from the International Monetary Fund that fall due on Tuesday.
- US President Barack Obama called German Chancellor Angela Merkel, and senior US officials including Treasury Secretary Jack Lew, who spoke to Tsipras, urged Europe and the IMF to come up with a plan to hold the single currency together and keep Greece in the Eurozone. The German and French governments announced emergency political meetings. German Chancellor Angela Merkel is willing to engage in further talks with Greek Prime Minister Alexis Tsipras if he wishes to do so.
- EU chief executive Jean-Claude Juncker said he still believed a Greek exit from the Eurozone was not an option but cautioned that he alone could not necessarily protect Athens from other leaders who may disagree.
- IMF head Christine Lagarde has said that the referendum plans will be invalid once Greece’s current bailout expires on Tuesday, since the creditors’ proposals for a new deal will expire alongside it and Greece will have nothing to vote on. Another key issue is whether the ECB will continue to provide emergency liquidity assistance after Tuesday. The European Central Bank's council member Ewald Nowotny said that the governing council would meet on Wednesday to decide whether to increase emergency funding to Greek banks.
- Opinion polls have consistently shown a majority of Greeks do not want to leave the Eurozone. If a majority votes to accept the creditors’ proposals this would almost certainly mean the end of the Syriza-led government. In this situation a technocratic government like that seen back in 2011 may be created.
- Will Greece leave the Eurozone after a “No” vote wins? The precise mechanism of Grexit is uncertain, though a ceasing of ECB support for Greek banks would seem the most likely channel.
- Financial markets may be volatile in the coming days. The ECB could stabilize bond markets by conducting more aggressive QE related bond purchases. In a statement Sunday the ECB has indicated its willingness to “use all the instruments available within its mandate”. This is a strong verbal intervention warning especially when combined with the statement that the ECB is “closely monitoring” the situation in financial markets for potential implications for the monetary policy stance.
- New York Fed President William Dudley (dovish) said a September interest rate hike is “very much in play” if the US economy continues to strengthen, though the Federal Reserve could also wait until December to start tightening policy.
- The markets expected a last-minute agreement and were shocked after Athens broke off negotiations unilaterally on Saturday. The EUR/USD opened on Monday significantly below Friday’s close. The EUR/USD came off its lows and filled the gap. We are looking to sell the EUR/USD at 1.1180 as we expect sound US macroeconomic figures this week. Moreover, tomorrow’s Eurozone inflation data may fuel bearish sentiment. We cannot rule out further hawkish comments from Fed policymakers that will be preparing the market for a rate hike in September. Dudley’s speech is quite emphatic in this context.
- We will set the target above the 1.0955 low seen overnight, but a stronger corrective move to the May 27 1.0819 is also possible.
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Significant technical analysis' levels:
Resistance: 1.1220 (high Jun 26), 1.1235 (high Jun 24), 1.1347 (high Jun 23)
Support: 1.0955 (session low Jun 29), 1.0916 (low Jun 2), 1.0887 (low Jun 1)
USD/JPY Lower On Greek Crisis
(buy at 122.50)
- Japanese Finance Minister Taro Aso said he did not think declines in Japanese stocks would spread or that the JPY would suddenly spike due to turmoil triggered by a deepening crisis in Greece. Japan's Nikkei share average slipped to a one-week low due to rising risks of Greece defaulting on its debts.
- The Bank of Japan said if the deepening crisis triggers global market turmoil and risks hurting Japan's banking system, the BOJ's first response would be to offer massive, short-term funds in emergency market operations to calm investors.
- Bank of Japan Governor Haruhiko Kuroda the global economic outlook was bound with uncertainty that risked delaying the achievement of 2% inflation target. The remarks contrast with his usual optimistic view on the economic outlook. Japan's core consumer inflation rose just 0.1% yoy in May.
- Japanese industrial output fell 2.2% compared with the median estimate for a 0.8% yoy drop and a 1.2% increase in April. The fall in output in May was due to declines in production at auto manufacturers and electronics parts makers as these companies try to reduce a pile-up in inventories. Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 1.5% in June and rise 0.6% in July..
- Separate data showed retail sales rose 3.0% yoy in May, more than the median estimate for a 2.3% annual increase.
- The USD/JPY fell to a one-month low of 122.10. The JPY often appreciates during times of uncertainty on its safe-haven status. In our opinion the USD/JPY may recover soon, because we expect sound US macroeconomic figures this week. That is why we are looking to get long on the USD/JPY at 122.50. However, the risk is elevated due to uncertainty over situation in Greece.
Significant technical analysis' levels:
Resistance: 123.19 (session high Jun 29), 123.23 (low Jun 26), 123.98 (high Jun 26)
Support: 122.11 (session low Jun 29), 122.04 (high Mar 10), 122.03 (38.2% fibo 115.85-125.86)
USD/CHF: SNB Confirms Weekend Intervention To Weaken CHF
(buy at 0.9280)
- The Swiss National Bank Chairman Thomas Jordan said the bank intervened in foreign exchange markets over the weekend in an effort to hold down the CHF's rise amid uncertainty over Greece's financial future. Jordan would not comment on the details of the intervention. Jordan said a Greek default was not part of the SNB's base scenario but the central bank was prepared for such an event. Jordan said the Eurozone is in a better position than a few years ago and that turmoil in Greece is unlikely to destabilise other countries such as Spain and Portugal.
- The EUR/CHF had fallen to 1.0315 overnight, its weakest level since early June, before bouncing to trade at 1.0440 soon after Jordan's comments. Clearly, the SNB wants to shout out its intervention as loudly as possible, in the hope that speculative interest on CHF longs will not build. However, the recovery in the EUR/CHF was short-lived.
- Our economists expect some good US macroeconomic releases this week that should support the USD. That is why we are going to buy USD/CHF at 0.9280. If the order is filled the target will be 0.9500.
Significant technical analysis' levels:
Resistance: 0.9435 (high Jun 29), 0.9502 (high Jun 5), 0.9531 (200-dma)
Support: 0.9300 (low Jun 26), 0.9289 (10-dma), 0.9282 (low Jun 24)
Source: Growth Aces Forex Trading Strategies
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