4th of July 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
4 July 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
Eurozone finance ministers held a conference call on Saturday at which they authorised the release of Europe's share of Greece's next quarterly instalment. The IMF is due to decide on its own contribution later this week, perhaps on Friday. The weekend news was very much expected after the Greek parliament voted in favour of additional austerity measures last week - indeed the euro and risk assets in general have rallied recently in anticipation of this outcome.

The S&P500 closed up 1.44% on Friday, and the Nikkei-225 breached the 10000 mark overnight for the first time in two months. Optimism on Greece was a factor, but so too was the June ISM report which was much stronger than expected, rising to 55.3 (cons. 52.0). During the Asia session EURUSD traded 1.4510-1.4580 and USDJPY 80.69-80.94. There are no US data releases today due to the July 4th Independence Day holiday.

EUR
S&P warned that, if implemented, the draft plan advanced by French banks last week (which outlines a possible framework for a Greek debt rollover) might cause Greece's rating to be cut to "selective default".

Eurozone finance ministers agreed to release their share of Greece's fifth quarterly funding instalment provided the IMF also agrees to disburse its share. As expected, no decision was taken on the design of a new longer-term rescue plan, which is expected to supercede the original May 2010 program. Nevertheless, private sector involvement remains a cornerstone of the proposals which are currently on the table. Ministers pledged to determine in the "coming weeks" the "precise modalities and scale of private sector involvement" that will be needed.

Greek Finance Minister Venizelos offered further guidance on the likely timeframe involved, noting that finance ministers decided "to work out a new programme on time, before mid-September". The German Finance Ministry added that a new Greek aid package could be finalised by the Autumn.

Germany's Finance Minister Schaeuble said that the country's banks and insurers had agreed to a participation plan which would roll over at least EUR2bn in Greek bonds.

In a weekend interview with Der Spiegel, German Finance Minister Schaeuble repeated that Germany is making contingency plans for an eventual Greek default, although he said he does not expect these plans will be needed.

JPY
BoJ Governor Shirakawa repeated his view that the Japanese economy is showing signs of picking up and will eventually resume a moderate recovery. The comments suggest that another round of monetary easing is still a somewhat distant prospect.

CHF
The Swiss Economy Minister Schneider-Ammann said that it is not the government's responsibility to deal with the strong franc, and that he is confident that exporters will be able to cope with the strong currency. He warned that the franc's strength is not a 'temporary phenomenon' and that the 'strong franc will persist'.

AUD
USDCNY fixed at a new record low which is normally a trigger for AUD upside. However, any AUD positivity from the fixing was more than offset after some particularly weak Australian economic data. Both retail sales and building approvals fell and came in well short of expectations. Our Australian economics team continues to expect no change from the RBA at tonight's policy meeting, although the tightening bias is likely to remain in place with an explicit focus on the upcoming Q2 CPI report.


A. White
Analyst at Fibosignals.com


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