Daily Trade Recommendation

Due to the uncertainty regarding Greece we expect the yen to remain bid, and the euro remain pressured. We will be looking to sell EURJPY on pullbacks to the 136 -137 area.

Current Market Sentiment:

Over the weekend Greek PM Tsipras announced that a referendum will be held on July 5 to decide whether to accept the Troika's austerity measures and continue to receive bailout funds. A "no" vote will result in a certain Greek default and potential exit from the Eurozone. The current bailout will end tomorrow. Euro gapped lower at the open with EURUSD and EURJPY gapping 150 and 300 pips respectively. Downward pressure remains on the currency.

The PBOC cut rates by 25 basis points over the weekend to combat their slowing economy. The effect of this move on markets has been largely overshadowed by the news from Europe. The Shanghai Composite extended its hefty decline, now down 20% from highs, officially in bear market territory.

Fundamentals:

The USD remains the strongest currency in the longer term. The market is expecting the Fed to raise rates in H2. Recent NFP readings have been positive and core inflation is trending higher. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against many counterparts and therefore may be susceptible to pullbacks - such pullbacks will likely provide buying opportunities. The recent FOMC statement showed the Fed are on track to raise rates in the context of an improving economy. However USD saw heavy selling as the economic projections for the FFR in 2016 and 2017 were scaled back. The dollar has since regained strength.

EUR: The refusal by Greece to accept its creditors' proposal and instead call a referendum has put more downward bias on the euro. Already a fundamentally weak currency due to extremely loose monetary policy, we now expect its depreciation to accelerate. BofAML forecasts EUR/USD to reach parity by year end.

GBP is looking at a rate hike around the middle of 2016 and is therefore a fundamentally bullish currency in the long term. The recent jobs numbers showed much better than expected average earnings figures and this is very bullish for the pound as it brings forward the timing for rate liftoff. We are also aware of two of the nine MPC members being very close to voting for a rate increase. GBP has had a strong rally over the past several weeks and is currently near long term highs against most counterparts. Barclays forecast the BOE to hike rates in Q1.

AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD. Overall the bias for AUD is on the bearish side of neutral, until we see more data. Language from Governor Stephens recently has been dovish. A resumption of the downtrend in base metals will also see AUD pressured.

NZD has a new official cash rate of 3.25% after the RBNZ cut rates on June 11. The Bank has left the door open for further easing and as such the Kiwi dollar is a bearish currency in the medium term. The recent GDP reading showed a huge miss and this adds weight to the chance of another rate cut, with some banks calling for two more cuts in 2015. Kiwi is at multi-year lows. 12 out of 17 analysts expect the RBNZ to cut rates to 3% on July 23rd, while Credit Suisse OIS market has priced in a 74% chance of a 25bps rate cut.

CAD remains on the weaker side of neutral. In the absence of unexpected data, CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing. The Greek crisis is likely to see yen appreciate.

CHF is fundamentally a weaker currency given the SNB's negative interest rates. It is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is approximately 75%.

Technicals:

We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:

Today we see CPI from Germany and Spain. Headlines regarding Greece are likely to dominate headlines.