Greek Hopes, Waiting On U.S. Data

The US economy to finally improve significantly?

Despite the Fed’s resolute optimism, economic data for the past two months and a half did not paint a shining picture of the world’s largest economy. Last week, data showed that industrial production contracted -0.2%m/m in May while June Empire manufacturing index printed at -1.98 (6 median forecast). On the top of it, data showed that inflation did not pick up in May with CPI printing flat on a year-over-year basis or 0.4%m/m versus 0.1%y/y and 0.5%m/m expected. Core CPI also disappointed with a reading below 1.8% y/y consensus at 1.7%.

The market consequently becomes increasingly convinced that the ongoing second quarter will not be a replay of last year’s strong performance and that the Fed is looking for a durable improvement the US economy before starting to gradually increase the federal funds rate. Since the Fed made crystal clear that its monetary policy is data dependent, market participants aligned their market positioning accordingly. At the moment, traders are still waiting for the starting shot to build long USD positions and this morning sharp EUR/USD drop is rather an adjustment in short EUR positioning – due to easing tensions in the Greek negotiations - than a proper start of a dollar bull run. However, we may see a trend reversal this week as the market shifts focus toward the Fed’s monetary policy and the upcoming economic data. EUR/USD is moving lower toward the 1.1220 support (Fibonacci 31.8% on May debasement) and will need good data to validate a successful attempt at breaking the latter resistance to the downside. The next strong support area stands at 1.1050/60.

Is Greece saving time?

Greece proposed late yesterday a new plan in order to progress toward an agreement. This includes higher taxes and later retirement. In case a deal is not reached by June 30th, a bank run should continue, €3 billion were withdraw of Greek banks last week, and capital controls put in place as what it has been already done in Cyprus.

Yesterday, Greek shares, the Athens General-Composite, surged 9% on hopes of a last-minute deal. However, we remain very cautious on this issue. Indeed, owing such a massive debt means that reaching a deal is more important for creditors than for Greece. In addition, a Greek default would have a huge impact, in particular Germany’s exposure is €57.32 billion exposure and France’s €42.98 billion. Greek’s negotiation potential is underestimated by markets whereas its power is massive. Greek’s government is fully aware of that. The Eurozone is clearly at stake. Furthermore, by meeting the Russian’s president Vladimir Putin, Tsipras adds more pressure on creditors. The issue becomes now more geopolitical as Russia, which is under sanctions by the European Union until 2016, has interest to see the Eurozone collapsing. Therefore, we anticipate ECB and IMF try to reach a deal mainly to protect the single-currency area.

USD/CHF - Failing to Break Support at 0.9151

The Risk Today

EUR/USD is decreasing. Hourly resistance lies at 1.1436 (18/06/2015 high). Stronger resistance is given at 1.1459 (15/05/2015 high). Hourly support can be found at 1.1151 (12/06/2015 low). In the longer term, the symmetrical triangle from 2010-2014 favors further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).

GBP/USD has decreased sharply towards the rising trend-line. We expect the pair to bounce at around 1.5740 (rising trend-line). Hourly resistance is given at 1.5930 (18/06/2015 high). Hourly support is given at 1.5422 (11/06/2015 low). In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).

USD/JPY remains in range between the hourly support at 122.46 (10/06/2015 low) and the hourly resistance at 124.62 (10/06/2015). We expect the pair to test again this support. The pair is gaining bearish momentum on the short term. Key resistance lies at 135.15 (14-year high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).

USD/CHF keeps on pushing toward the key support at 0.9072 (07/05/2015 low). Hourly resistance can be found at 0.9408 (11/06/2015 high). Hourly support is given at 0.9151 (18/06/2015 low) and stronger resistance can be found at 0.9573 (29/05/2015 high). In the shortterm, the pair is setting lower highs, therefore we remain bearish over the next few weeks. In the long-term, there is no sign to suggest the end of the current downtrend. After failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found 0.8986 (30/01/2015 low).

Written By: Swissquote Bank Ltd