Review: On Friday as well as overnight focus was on Europe. On Friday, rumours had it that the Spanish region of Valencia needed government capital, which sent Spanish 10-year yields above 7% (currently at 7.38%). 7% is often mentioned as the ’magic’ crisis level at which a country needs external help. Over the weekend focus was on Greece. The German newspaper Der Spiegel brought a number of critical articles about Greece, including an article which claims that a senior official has said that the IMF will not provide further support.
Moreover, the ECB announced on Friday that it will no longer accept Greek government bonds as collateral.
Greek banks will still be able to obtain funds via the Bank of Greece.
The news played a major part in sending the Japanese yen to the strongest level against the euro and the Danish krone in twelve years. Likewise the US dollar is at the strongest it has been in two years and sterling is at the strongest it has been in four years.
Market sentiment: the turbulence in Europe and statements from a Chinese PBOC adviser about expected lower Chinese growth sent commodity prices significantly lower on Friday and overnight. Copper shed 4% and Brent oil 2.5% (USD 105 a barrel opens lower). In the FX market currencies like ZAR, BRL, MXN and AUD weakened. Emerging market currencies and commodity currencies are generally approaching important points of support, but given breach below 121 in the EUR/USD rate we do not recommend investors to buy the support. If 102.50 is breached to the downside in the AUD/USD rate, 13.55 to the upside in the USD/MXN rate, 8.375 to the upside in the USD/ZAR rate and 1.825 to the upside in the USD/TRY rate, it will signal a broader USD appreciation and send up the USD index. The EUR/USD rate will move down towards 120.
Today’s macro-economic news: no major events today. Overnight (04:30 am) Chinese PMIs from HSBC will be released (prior 48.2). The markets are still concerned about developments in China and the figure will cause movements in currencies (particularly in EM and commodity currencies).
EURUSD (NEUTRAL): 120 is the target for our EUR/USD Spot On top-pick.
EURJPY (Neutral to BUY): we recommend investors to buy EUR/JPY with stop loss at 93.45. The cross rate has this morning again breached to the lowest level in twelve years. Downward trend for both the short and long term, but technically there is divergence also for both the short and long term. Moreover, there is technical support at the current level. We recommend investors to buy with an expectation of a correction to the upside.
EURPLN (BUY): we recommend that investors buy EURPLN with stop-loss at 412.74.
EURSEK (BUY): we recommend investors to BUY EURSEK at the current level.
EURGBP (Buy to NEUTRAL): the stop at 77.94 was reached (-0.63%).