| Having trouble viewing this email? Click here |
Mid-Day Report: Euro Tumbled as Greece Exit Talk Resurfaced, Yen Up on Weak US Data
Greek prime minister Samaras, facing deepening recession in the country, is set to meet with Luxemburg prime minister Juncker, German chancellor Merkel and French president Hollande next week to persuade Eurozone leaders to extend the time of austerity from two years to four years, up till 2016. According to Samaras' plan, budget deficit will drop by 1.5% of GDP annually, which is much easier than prior agreement of 2.5% of GDP annually. And, an additional EUR 20b funding would be required to support Greece as deficit reduction in 2013/14 would be smaller than planned. That could be raised from either from IMF, treasury bills, or by postponing repayment of the EU/IMF loan from 2016 until 2020. However, Merkel's spokesman Steffen Seibert insisted that there in no change in Germany's stance on Greece and emphasized that "the agreed memorandum of understanding which states what the Greek obligations are remains the basis of all aid decisions." The overall situation, including deepened recession, which showed -6.2% contraction in Q2 GDP, revived the talk of Greece exit. Euro is under broad based pressure in early US session and is back pressing record lower against Canadian dollar at 1.2160.
Spain is somewhat immuned from today's selloff in Euro as 10 year yield dipped back to 6.66% at the time of writing. Spanish prime minister Rajoy reiterated that he'd wait for ECB's decision on bond-purchases before deciding on whether to seek a sovereign bailout. Meanwhile, the Bank of Spain revealed that banks in the country borrowed a total of EUR 375.5b from ECB during July. That was 11% up from June's level and hit a record. Also worth to note is that, it's nearly 7 times of the EUR 52b borrowed last year in July 2011. EU Economic and Monetary Affairs Commissioner Rehn said yesterday the Spanish government as "an open mind" on the issue. And he's confident that both EU and ECB are ready to "take action once certain conditions are met and if there is a request by some member state".
Meanwhile, the Japanese yen also rebounded across the board after weak US data. CPI moderated more than expected to 1.4% yoy in July while CPI core also dropped to 2.1% yoy. Empire state manufacturing index was poor and deteriorated to -5.85 in August versus consensus of 7. TIC capital flow shrank sharply to USD 9.3b in June. Nonetheless, industrial production rose 0.6% in July, beating expectation of 0.5%. Timing of more BoJ stimulus will very much depend on when Fed would finally launch QE3. But it should again be noted that data released earlier this week showed that BoJ's government bond holding totalled as much as JPY 80.97T as of last Friday. The number exceeded BoJ's self-imposed cap of the JPY 80.79T worth of bank notes in circulation. While the central bank also said that bond-purchases under the stimulus program are excepted from the rule, the size of the balance sheet would still limit the size of any further expansion in the quantitative easing program. At least, BoJ will remain careful in avoiding an impression of debt monetization.
Sterling strengthened against euro today after employment data showed that claimant count unexpectedly dropped -5.9k in July. Meanwhile, unemployment rate also unexpectedly improved to 8.0% in June. Meanwhile, the August BOE minutes indicated that policymakers voted unanimously to leave the Bank rate unchanged at 0.5% and adopt no change in asset purchases. Yet, it also unveiled that some members favored more easing. Unlike previous minutes, the August one did not hint that the BOE is biased for further rate cut. We believe the BOE would gauge the impact of the new Funding for Lending (FLS) scheme before implementing additional easing measures. As such, the most likely of further easing would be in November, when the 50B pound of asset purchases is completed and the impact of the FLS would be reflected in the economy. More in BOE Voted Unanimously To Keep Monetary Stance Unchanged.
EUR/GBP Mid-Day Outlook
Daily Pivots: (S1) 0.7848; (P) 0.7866; (R1) 0.7878; More...
EUR/GBP's break of 0.7826 indicates that fall from 0.7962 has resumed and intraday bias is back on the downside for 0.7755 support. As noted before, we're slightly favoring that rebound form 0.7755 is finished at 0.7962 already. And as EUR/GBP is staying well inside the near term falling channel, fall from 0.9083 is still in progress. Break of 0.7755 will confirm fall resumption for 0.7693 key support level next. On the upside, above 0.7883 minor resistance will turn bias neutral again. But we'd stay cautiously bearish as long as 0.7962 resistance holds.
In the bigger picture, price actions from 0.9799 are treated as a long term consolidation pattern with fall from 0.9083 as the third leg. Strong support is expected inside 0.7693/8186 support zone to conclude the consolidation. Hence, we'll continue to focus on reversal signal during this stage of the decline. Break of 0.8156 resistance will indicate medium term reversal. However, sustained break of 0.7693 will invalidate this view and could then bring deeper fall to 100% projection of 0.9799 to 0.8067 from 0.9083 at 0.7351 or even further to 0.6535/7258 support zone.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 00:30 | AUD | Westpac Consumer Confidence Aug | -2.50% | 3.70% | ||
| 00:30 | AUD | Westpac Consumer Confidence Index Aug | 96.6 | 99.1 | ||
| 08:30 | GBP | BoE Minutes | 0--0--9 | 0--0--9 | 0--0--9 | |
| 08:30 | GBP | Claimant Count Change Jul | -5.9K | 6.5K | 6.1K | 1.0K |
| 08:30 | GBP | ILO Unemployment Rate 3M Jun | 8.00% | 8.10% | 8.10% | |
| 12:30 | USD | CPI M/M Jul | 0.00% | 0.20% | 0.00% | |
| 12:30 | USD | CPI Y/Y Jul | 1.40% | 1.50% | 1.70% | |
| 12:30 | USD | CPI Core M/M Jul | 0.10% | 0.20% | 0.20% | |
| 12:30 | USD | CPI Core Y/Y Jul | 2.10% | 2.20% | 2.20% | |
| 12:30 | USD | Empire State Manufacturing Aug | -5.85 | 7 | 7.39 | |
| 13:00 | USD | Net Long-term TIC Flows Jun | 9.3B | 63.5B | 55.0B | |
| 13:15 | USD | Industrial Production Jul | 0.60% | 0.50% | 0.40% | |
| 13:15 | USD | Capacity Utilization Jul | 79.30% | 79.20% | 78.90% | |
| 14:00 | USD | NAHB Housing Market Index Aug | 37 | 34 | 35 | |
| 14:30 | USD | Crude Oil Inventories | -3.7M | -2.0M | -3.7M |
Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box
| ||||||||
No comments:
Post a Comment