DAILY MARKET COMMENTARY
27 June 2011 – 8:00 GMT
Monday
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Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
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FUNDAMENTAL ANALYSIS at 0800 GMT
USD
The dollar has generally kept a bid tone overnight as markets remain wary ahead of further Eurozone event risk this week. The Greek parliament is due to vote on last week's agreed austerity package on Wednesday/Thursday and many fear a repeat of last week's politically-induced volatility. Despite some positive headlines both from within Greece and the Eurozone, as well as pledges of further Chinese support from Premier Wen Jiabao - who arrives in Berlin this week for talks - the lack of a comprehensive solution continues to undermine the currency. On the US side, the Fed's relevant decisions last week have clearly given the dollar a boost, but there is still a material difference between ceasing fresh easing and tightening, and questions remain over the US' ability to weather more stringent monetary conditions. However, over the weekend the BIS warned that most central banks are behind the curve and called for interest rates to rise globally. Be that as it may, without the US leading the way, other minor central banks are clearly unwilling to risk moving ahead to exert upward pressure on their currencies, and also increase fiscal pressures. Ahead this week, apart from Eurozone event risk, CPI figures are due in the US, Eurozone and Canada, while more activity indicators are out in the US. Overnight EURUSD traded 1.4103-1.4224 and USDJPY 80.29-80.89. Equity markets in Asia traded on a soft tone.
EUR
China's Premier Wen made some euro-positive remarks during an ongoing visit to Europe. He said 'China has been a heavy investor in the euro sovereign-debt market&we have bought a lot of euro bonds over the past years, and we will continue to support Europe and the euro." We note however that the comments fall short of any specific commitment to buy additional Eurozone bonds, either from the periphery or the core.
The Greek parliament is due to vote on Wednesday and Thursday on the new program of austerity measures. Prime Minister Papandreou, Finance Minister Venizelos, and Deputy Prime Minister Pangalos have lately sounded optimistic that the measures will pass. German Finance Minister Schaeuble also sounded confident but, asked what the consequences of rejection might be, he said 'the stability of the entire euro zone would be in danger and we would need to quickly ensure that the risk of contagion for the financial system and other euro area countries would be contained'. Asked what would happen if Greece defaulted, ECB Governing Council member Mersch replied: 'Chaos'.
Greek Finance Minister Venizelos ruled out Greece leaving the Eurozone, noting that staying inside strengthens Greece's bargaining position. Greek Prime Minister Papandreou also again dismissed the idea of an exit noting that the 'cons outweigh the pros.'
Referring to the size of a possible new Greek rescue Papandreou described it as 'a mammoth loan', and said it could be as large as the first rescue which amounted to ?110 bn.
French President Sarkozy and Spanish Prime Minister Zapatero implied that their respective banks and insurance companies would be willing to participate in a voluntary rollover of their Greek sovereign debt holdings.
In data released last week, the German IFO current assessment was significantly above consensus at 123.3, but the expectations index was still relatively soft. Our European economists note that the gap between the current and expectations measures has been turning more negative, suggesting that German GDP growth will suffer later in the year. There are no major releases out of the Eurozone today.
GBP
The Observer newspaper reported that UK Treasury officials 'are working behind the scenes to persuade British banks holding Greek bonds to take a "haircut" now as the best way to avert a potential global crisis'. Reuters later quoted a Treasury spokesperson saying that the 'Treasury is monitoring the situation closely, but no specific proposals for private sector involvement have been tabled'.
On Friday BoE Governor King said the Eurozone's fiscal crisis is currently the single-biggest threat to U.K. financial stability. He warned that a failure to address the crisis could lead to a "generalized loss of confidence".
In figures released overnight, the Lloyds Business Barometer came in at 36 vs. 14 prior, and the Homestrack Housing Survey came in at -0.1%m/m, and -3.9%y/y. Ahead this week in the UK, the market will focus on the Q1 Final GDP release and further BoE comments at the U.K. Parliament's Treasury Select Committee testimonies and BoE Annual Report releases.
CHF
On Friday, the Swiss franc rose to new highs against both the euro and the dollar. Meanwhile, domestic calls for action on the currency front continue to grow louder. Over the weekend, Swiss Socialist Party President Levrat called for 'emergency measures now', and Hans Hess, President of Swiss industry group Swissmem urged the SNB to 'consider a temporary peg of the Swiss franc to the euro' if the Greece fiscal crisis escalates.
NZD
In figures released overnight, the New Zealand trade balance for May was far weaker than expected at N$605m (cons. N$1000m). Exports disappointed to the downside while imports jumped.
In general though, our economists note that there has been a run of better-than-expected data in recent weeks out of New Zealand and this may not end in the near future. Although there is still more doubt where business sentiment goes next it is already above average.
A. White
Analyst at Fibosignals.com
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