What Greece Wants

Forex News and Events:

Market risk aversion seems to be moderating for this start of the week with the VIX dropping 9.81%, and cash gold evolving in a muted range. Speculative short against the EUR were lower this morning by 1.38% but the environment stays somewhat EUR-negative as the EUR drops back below the 1.2500 level for the first time since June 13th. As for the upcoming events, it seems that the Greek economy is not left suffering on its own: Both the country’s awaited representatives at the June 28-29 EU summit are on a sick leave as newly sworn in Prime Minister Samaras underwent eye surgery on Saturday, and Finance Minister Rapanos was rushed to the hospital with little information on his condition. Instead they will be replaced by Greece’s foreign and outgoing finance ministers, who are expected to ask for a renegotiation of the Memorandum of Understanding underlying the terms for the Greek bailout. Greece will ask for a two-year extension for the 2014 budgetary deadline in order to reach the 2.1% deficit-to-GDP target down from a 9.3% level in 2011. This extension will incur further EUR 16BN to 20BN in external funding. An e-mailed statement over the weekend also indicated the coalition government wishes to get rid of the MOU clause about a 150,000 public-sector positions. Moreover, New Democracy, Pasok and Democratic left proposed the sales tax for restaurants to be reduced and that threshold for income tax eligibility be raised. As to privatizations, the government supports state-asset sales – most of which through public-private partnerships- which are supposed to bring in about EUR 50BN to help ease the country’s debt burden. The Germans appear to exhibit more rigidity as to the demands emanating from the Greeks. As a matter of fact, Schaeuble said in an interview for Bild am Sonntag that “The most important task facing new Prime Minister Samaras is to enact the program agreed upon quickly and without further delay instead of asking how much more others can do for Greece”. A poll of 4000 people showed that 78% of Germans, 65% of French, 51% of Spanish and 49% of Italians would be in favor of a Greek exit. Even more, in a poll by Ifop-Fiducial, Germans showed the lowest support for the euro among the four largest nations of the currency bloc, as 39% voted in favor of an exit from the EMU. Most of the opinions also converged to the thought that Greece would never pay back its debt and its stay in the monetary bloc would further deteriorate the situation. Today Germany reached its auction target, selling EUR 2.045BN of 12-Month Bubill that yielded an average of 0.0191%. The yield is lower than the average of the previous auction at 0.026%, but is a logical extension of the continued drop in yield of 10-Year sovereign Bunds – lower by 7 basis points to 1.51%-. Markets are awaiting the 3- and 6-month Letras auction tomorrow by Spain and the 6-Month BOT auction on Wednesday by Italy.

Today's Key Issues (time in GMT):

2012-06-25T07:00:00 EUR SP PPI
2012-06-25T09:30:00 EUR GE 12-M Bubill Auction
2012-06-25T12:30:00 USD Chicago Fed National Activity
2012-06-25T14:00:00 USD US New Home Sales
2012-06-25T15:30:00 USD US 6-M Bill Auction

The Risk Today:

EURUSD made a solid break below June’s temporary bullish channel. The pair opened below 1.2545, the 18-DMA. On Friday, EUR bulls failed to boost the currency to test the lower channel of the trend at 1.2624, and we see today that the tendency has reverted back into red territory. We expect the EUR to remain offered in the wait of the June 28-29 EU summit. We expect EURUSD to evolve with little volatility, lower to its first support levels at 1.2438 (5th June low), 1.2288 (1st June low) 1.2147/52 (29th June 10’ low) then 1.1862 (7th June low). However, if the pair manages to rebound, the first levels of resistance can be found at 1.2573 (18th and 19th June Support), 1.2824 (22nd May high), and a move extension towards 1.2906 (support turned resistance), 1.3066 (8th May high), 1.3081 (gap high), 1.3122 (2nd May low), then 1.3179 (7th May pivot high).

GBPUSD is heading for its fourth consecutive drop after downward momentum showed signs of exhaustion on Friday. The pair opened today with a weekend gap right beneath 1.5570. We expect the gap to be filled before GBPUSD resumes its move lower. Should the gap remain open, the next levels of support lie at 1.5463 (double touch on 12th June), 1.5405 (8th June low), 1.5374 (6th June low), 1.5321 (5th June low), then 1.5268 (13th Jan low). First resistances are at 1.5602 (Double top on 7th and 12th June), 1.5775 (23rd May high), 1.5852 (22nd May high), 1.5954 (1st Mar pivot high), 1.6066 (support turned resistance), 1.6207 (4th May high), 1.6302 (30th May high), 1.6335 ( 31st Aug 11’ high), 1.6455 (29th Aug 11’ high).

USDJPY broke a three trading session rally triggered last week by the Fed’s extension of Operation Twist. The JPY depreciated yesterday against the USD reaching 80.21 before reverting today on higher risk aversion. The three white soldier pattern did not confirm on Friday as bulls failed to drive the pair higher. Key levels of support lie at 79.79 (7th June high), 79.52 (15th June pivot high), 78.60 (6th June pivot low & downtrend top), 78.00 (Psychological lvl), 77.66 (1st June low), 77.36 (13th Feb low) then 76.58 (3rd & 17th Jan low). If the bullish directionality is maintained, the first levels of resistance lie at 80.21 (reversal), 80.61 (2nd May high), 81.77/86 (failed corrective rally), 82.56 (6th April high), 82.99 (3rd April high), trigger resistance at 83.40.

USDCHF has remained above the down-trending channel started in June and is exhibiting higher lows and higher highs. The move could be explained by a better visibility over the Fed’s intention than the SNB’s. However, it is important to note that the threat of capital control is still hovering over the CHF as SNB board member Danthine raised the possibility of capital controls to be used in “extreme situations”. Further to the upside, the first levels of supply can be found at 0.9596 (13th June high), 0.9693 (4th June pivot high), 0.9774 (Feb 2011 high), 1.0067 (1st Dec 11’ pivot high), then 1.0294 (10 Sept 10’ high). However, if the pair fails to maintain its hike, support levels will be at 0.9420 (17th June low), 0.9369 (21st May Support), then 0.9183 (7th & 11th May low).

Resistance and Support: