Weekly Briefing 120526

1.  Review.

Euro is down 2% this week. Uncertain remains high due to lack of clarity about Eurobond, Greek elections and bank capitalization.
Trades
Edged AUDUSD, USDGBP, short AUDUSD

2.  Analysis.

"Fundamental analysis"
Monday: Nothing
Tuesday: GBP CPI y/y 3.0% 3.1% 3.5%
Wednesday: JPY Overnight Call Rate <0.10% <0.10% <0.10%
Thursday: CNY HSBC Flash Manufacturing PM 48.7 49.3, EUR German Ifo Business Climate 106.9 109.5 109.9, USD Unemployment Claims 370k 374K 370K
For a big EUR south move you need EU trouble and US economic growth and normality. If you don't have both, no big euro south side and potential for euro upside due to the structural improvements and the long term USD diversification
Economic releases have suggested that the Euro zone may experience negative growth again in Q2 as disappointing May PMI figures out of Germany, France, and the EZ as well as poor German IFO survey readings indicate the potential for contraction.
With the lack of anything from the EU summit and resulting price action it seems like the 1.25 / 1.30 buffer is not going to stop this train.
German 10-year and 30-year bund yields hit record lows as did Netherland’s 10-year bond yields. US 10-year Treasury yields traded near record lows. Spread between EU and US favors US and weights on EURUSD
China's Premier Wen said China would prevent the economy from slowing down rapidly and would be both timely and decisive in adjusting monetary and fiscal policies.

Id	Driver	Comments	Immanency
1	On-going global recovery	Germany is in good economic shape. EZ growth low. US growth uncertain	Yes
2	FED and BCE	FED will be on hold for until 2015;	No
3	EZ break up	EU dynamic is a longer term dynamic of "putting the structures in place”; Greece exit	Yes
4	PIIGS	Greece government and Spain banks in focus	Yes
5	QE3	Not off the table; PIMCO says yes	No
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD trading at the lowest level in 22-months
USDCHF reaching its highest level in 15-months
Dollar index reaching 20-month highs.
- Hans Rudeke from (these days) Morgan Stanley says 1.15.
- Citigroup says: Greek to leave early 2013. EUR to go to 1.20 and below
- Citi man: What if it is a structured Grexit before 2013? Then we can see somewhat of a rally in EURUSD.

- Asharf EURUSD forecast "1.20 ... "If you want to be academic, then 1.23"

- What about USD strength (too strong). Citi man: There is a good chance that the Fed will do QE if the USD strengthen "too much" on this. BUT, that will not be bad for the USD. So what he says is, well 1.20 OK, parity - completely and absolute out of the question

Median grid
EURUSD GRID 1.2400-1.3000, south bias
USDJPY GRID 76.00-80.00, neutral bias

Currency	Short term view(technical)	Long term view (fundamentals)
USD	Long	Short
JPY	Neutral	Short
AUD	Short	Long
EUR	Short	Long

"Market dynamics”
Considering the sentiment is anti EUR and thus USD positive on "risk off", good US data should further support the USD. Weak US data will probably go unnoticed as long as the focus is stuff like "will the Greek exit be orderly or disorderly".
We would view and countertrend corrections as opportunities to look to establish positions with the outlook for USD strength to continue.
EURUSD: The technicals suggest that a longer term decline is likely, however oscillators indicate that the euro may be oversold which point to a period of consolidation or possible correction. As such we would be hesitant to establish fresh shorts at current levels and would prefer to fade any euro strength.
I think the best approach currently is to look to sell in the upper grid and take profits in the lower grid. Not convinced dip-buying (long EUR) is a good idea before we have some more clarity about the Greek political situation: are the Greek people going to be forced to make a decision between to total extremes during the election, or are they going to simply make a decision as to who the managers of a "known outcome" will be? This is the kind of thing the market is going to trade on. We are going sub 1.25 because instead of some less uncertainty we have more in the next weeks.
Trade the grid with a short bias and expecting some southward adjustment unless the powers that be put a floor under the euro here.
Key events:
Monday: Nothing
Tuesday: USD CB Consumer Confidence 69.6 69.2
Wednesday: EUR Italian 10-y Bond Auction
Thursday: USD ADP Non-Farm Employment Change 139K 119K, USD Prelim GDP q/q 1.9% 2.2%
Friday: USD Non-Farm Employment Change 152K 115K, USD ISM Manufacturing PMI 54.1 54.8, GBP Manufacturing PMI 49.7 50.5

Prices and Risk on/off view

RORO (30): -1.2 (-1.8)