Weekly Briefing 120617

1.  Review.

“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 USD: QE off the table for now; If core prices for May fall below the 2.2% expected then the market may ignore the prior comments from Bernanke and price in the prospect for more QE” Weak US data went noticed suggesting more QE on the table next week.
“EURUSD, If the aid request for Spain is approved and deemed big enough we could see a sharp relief rally in the markets, that could even trump Greek election fears. EURUSD could break above 1.2625 (a double top from last week) and head back towards 1.30.” Aid request was approved but EUR stalled at 1.2657
“Stocks and commodities to recover also; . It would also cause the dollar to fall and the yen and other safe havens like German Bunds and US Treasuries to come under pressure.” Yes for bonds, not for commodities.
“if the outcome of the call doesn’t end up with Spanish banks being recapitalised or if funds fall short there could be blood on the street, and EURUSD could head back towards 1.20, while Spanish bond yields may surge.” Not this happened.
“GBPUSD: we believe that the uncertain will keep cross range bound.” Broken the short term range to 1.57
“While the Eurozone crisis remains the focus then in the short to medium term we think the dollar could strengthen further. However, in the second half of this year the outlook for the dollar is less clear. “
If the RBA cuts rates then we could see AUDUSD initially dip to 0.9500. However, the Eurozone crisis is likely to have a larger impact on the Aussie in the medium-term. If there is continued stress then we could see it fall back towards 0.9120” Instead the opposite, at 1.008
Trades
Closed everything

2.  Analysis.

"Fundamental analysis"
Monday: Nothing
Tuesday: GBP Manufacturing Production m/m -0.7% 0.1% 0.9%
Wednesday: USD PPI m/m -1.0% -0.6% -0.2%, USD Retail Sales m/m -0.2% -0.1% 0.1%
ThursdayUSD Core CPI m/m 0.2% 0.2% 0.2%, USD Unemployment Claims 386K 378K 377K
Friday: AUD USD Prelim UoM Consumer Sentiment 74 77.5 79.3 USD Capacity Utilization Rate 79.0% 79.2% 79.2%
Saturday: Greek election
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
We expect the Fed to remain accommodative as recent data deterioration indicates the economic recovery. is faltering. In our view, conditions are not likely to warrant an expansion of quantitative easing, although the probability of QE3 has been increasing as the Fed struggles to achieve its mandate of maximum employment and as a decline in consumption points to slower growth. . Markets are effectively doing the work for the Fed in keeping yields down as Lockhart said and he further indicated that that this “takes the pressure off to do something”.
GBP: More QE from the BOE, reports suggest it will be somewhere between GBP80-100bn. There is some skepticism that it will work. . Due to the dramatic nature of the announcement we now expect the Bank of England to announce more QE at its policy meeting in July, potentially GBP50bn worth.
appears to be picking up by more than originally anticipated.

Id	Driver	Comments	Immanency
1	On-going global recovery	Germany is in good economic shape. EZ growth low. US growth uncertain	No
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	Many Yes!
5	QE3	Not off the table	Yes
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD back at the Monday opening gap at 1.26, failing to break 38.2 Fibonacci level
USDCHF back from highest level in 15-months
Dollar index back from 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”
USD: QE not off the table for now . We expect all options to remain on the table, but no drastic measures taken just yet. This may disappoint investors that are looking for another dose of QE and could see risky assets move lower and a knee-jerk higher in USD yields. If there is no indication of additional purchases, the dollar is likely to benefit
EURUSD. In the week ahead, we will see the release of the June flash PMI’s, EZ consumer confidence, and key surveys due out of Germany. The German ZEW and IFO surveys are set for release on Tuesday and Friday, respectively. All PMI are expected to print below the 50 threshold and indicate contraction. This would be consistent with declining GDP growth and suggests that Europe may fall back into negative growth in 2Q.
GBPUSD: more QE from BoE, This is pound negative in the long-term in our view, especially since the ECB and the Fed may remain on hold unless there is an adverse outcome to the Greek election this weekend. 1.5350 is a key support zone for this pair, below here opens the way for a sharper decline to 1.50. A positive outcome to the election would make safe havens like the dollar less attractive and could cause a rally back towards 1.5750
Key events:
Monday: Nothing
Tuesday: GBP Manufacturing Production m/m 0.1% 0.9%
Wednesday: USD PPI m/m -0.6% -0.2%, USD Retail Sales m/m -0.1% 0.1%
ThursdayUSD Core CPI m/m 0.2% 0.2%, USD Unemployment Claims 378K 377K
Friday: AUD USD Prelim UoM Consumer Sentiment 77.5 79.3
Saturday: Greek election

Prices and Risk on/off view

RORO (30): -1.15 (-1.4)

Weekly Briefing 120610

1.  Review.

“EURUSD, the markets are deeply oversold, especially risky FX and European equities. if there is remedial action by the ECB or other European authorities then there could a powerful relief rally . If it can make its way back to 1.2510 then we may see a deeper pullback towards 1.2710. However, below 1.2350 opens the way to retest 1.2290 then 1.2150 and eventually 1.20. Without remedial action from the ECB or EU authorities it is hard to see how this pair can resist further downward pressure”. No action from ECB, with EURUSD at 1.251
“GBPUSD: We believe that a breach of this important support zone would be a very bearish development for this cross, and may open the way to 1.50 and then potentially to the 1.45 lows from 2010. However, this pair is starting to look oversold, so any remedial action from the European authorities to sort out the sovereign debt crisis could boost sterling, and negate any of the negative impact from more QE from the BOE.” Same see-saw as EURUSD, almost unchanged at 1.547
“While the Eurozone crisis remains the focus then in the short to medium term we think the dollar could strengthen further. However, in the second half of this year the outlook for the dollar is less clear.
If the RBA cuts rates then we could see AUDUSD initially dip to 0.9500. However, the Eurozone crisis is likely to have a larger impact on the Aussie in the medium-term. If there is continued stress then we could see it fall back towards 0.9120” Rate cut by 0.25%, no dip, AUDUSD gained thanks to the risk-on sentiment that prevailed in the week, now at 0.995
Trades
Long AUDUSD, GBPUSD

2.  Analysis.

"Fundamental analysis"
Monday: Nothing
Tuesday: AUD Cash Rate 2.50% 3.75% 3.75%, ISM Non-Manufacturing PMI 53.6 53.7 53.5
Wednesday: EUR Minimum Bid Rate 1.00% 1.00% 1.00%
Thursday: AUD Employment Change 39k 0.9K 15.5K, USD Unemployment Claims 377K 385K 383K
Friday: AUD Trade Balance -0.2B -0.92B -1.59B
Saturday: CNY CPI y/y 3.0% 3.2% 3.4%
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
The rating agency Fitch cut Spain’s credit rating to BBB from A on Thursday, which is just three steps away from junk. Fitch estimated that Spain’s banks need between EU 60 and 100 billion of capital. There is an announcement on Saturday and we will look for two things 1, how much money will be given to the banks and is it close to Fitch’s estimate (i.e., above EU 60bn). 2, When will the money be dispersed (the sooner the better to help placate the markets.)
The European Central Bank, the Federal Reserve and the Bank of England all seem unwilling to extend more stimuli at this stage, preferring instead to stay on the side lines. This is significant for a couple of reasons: 1, markets tend to react strongly to official liquidity injections, and 2, investors may have to navigate a very uncertain few weeks without the support of central banks.
Draghi was very clear: governments need to step up to the plate and forge greater fiscal unity and sort out the troubled banking sector; there is little now that the ECB can do.
As US Treasury rates are so low already it’s hard to see how more QE could have much of an impact on the US economy.
GBP: The BOE may have remained on hold last week but the prospect of more QE from the Bank is not ruled out completely and we could see another injection of cash in the coming months. This is due to the deteriorating picture for the UK economy (better than expected service sector PMI for May, the manufacturing sector survey was deep in contraction territory).
CNY: The market has interpreted the surprise rate cut from the PBOC last Thursday as a way to cushion the blow from a potential bout of weak data. The first rate cut in three years is significant since it suggests a shift in focus from Beijing from inflation to growth going forward. If they combine this with expanded stimulus then we could see the AUDUSD start to recover
AUD: , data released after the announced easing measures showed that Australia reported strong GDP and labor growth. Therefore domestically, the outlook may have been understated as economic activity appears to be picking up by more than originally anticipated.

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, but almost yes	No
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD trading back from at the lowest level in 22-months (1.228) to 1.251
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".
USD: QE off the table for now; If core prices for May fall below the 2.2% expected then the market may ignore the prior comments from Bernanke and price in the prospect for more QE
EURUSD, If the aid request for Spain is approved and deemed big enough we could see a sharp relief rally in the markets, that could even trump Greek election fears. EURUSD could break above 1.2625 (a double top from last week) and head back towards 1.30.
Stocks and commodities to recover also; . It would also cause the dollar to fall and the yen and other safe havens like German Bunds and US Treasuries to come under pressure.
if the outcome of the call doesn’t end up with Spanish banks being recapitalised or if funds fall short there could be blood on the street, and EURUSD could head back towards 1.20, while Spanish bond yields may surge.
GBPUSD: we believe that the uncertain will keep cross range bound.
While the Eurozone crisis remains the focus then in the short to medium term we think the dollar could strengthen further. However, in the second half of this year the outlook for the dollar is less clear.
If the RBA cuts rates then we could see AUDUSD initially dip to 0.9500. However, the Eurozone crisis is likely to have a larger impact on the Aussie in the medium-term. If there is continued stress then we could see it fall back towards 0.9120
Key events:
Monday: Nothing
Tuesday: GBP Manufacturing Production m/m 0.1% 0.9%
Wednesday: USD PPI m/m -0.6% -0.2%, USD Retail Sales m/m -0.1% 0.1%
ThursdayUSD Core CPI m/m 0.2% 0.2%, USD Unemployment Claims 378K 377K
Friday: AUD USD Prelim UoM Consumer Sentiment 77.5 79.3
Saturday: Greek election

Prices and Risk on/off view

RORO (30): -1.4 (-1.8)