Weekly Briefing 120701

1.  Review.

“Until we get a clear picture on the outlook for Europe and the fate of the currency bloc then it’s hard to pick a direction for stocks and other risky assets.
USD: We will be looking for a weekly close above 80.10 in USDJPY to get constructive on this pair. Added to that a successful outcome of the EU Summit next week could give the green light to dollar bulls to push this pair even higher.” USDJPY still capped at 80
“EURUSD: Next week is mainly going to be about this summit. Lots of noise beforehand. I think there is a good chance that they will make big decisions and as such after next week there might be cause for a EUR relief rally. The outcome of this summit could be critical for financial markets in the medium-term. A disappointing outcome could see EURUSD break below 1.2450 and head back towards the recent 1.2350 lows then towards 1.20. However, if decisive, bold action is taken then a march higher above the temporary top at 1.2750 towards 1.30 maybe possible” True, rally to 1.2680
“GBPUSD: We think that GBPUSD will end up being moved more by overall risk appetite rather than by policy actions from the Bank of England. Thus we expect it to consolidate between 1.5500 and 1.5750 in the lead up to the EU summit later this week”. True, rally to 1.570, to see if holds
Trades
Sell and covered EURUSD

2.  Analysis.

"Fundamental analysis"
Monday: USD New Home Sales 347K 343K
Tuesday: USD CB Consumer Confidence 62.0 64.0 64.9
Wednesday: USD Core Durable Goods Orders m/m 0.4% 1.0% -0.9%
Thursday: EUR EU Economic Summit, USD Unemployment Claims 386K 385K 387K
Friday: CAD GDP m/m 0.3% 0.2% 0.1%
Saturday:
Sunday: CNY Manufacturing PMI 50.2 49.9 50.4
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
Fed:
EUR: EU President announced that there had been a breakthrough. The positives: these decisions help to break the link between sovereigns and bank, severing the link between bailout loans and growth-destroying austerity, reduces the chance of political risk. Negatives: The sovereign crisis may not be over just yet, rescue funds won’t be able to re-capitalise banks or sovereigns until a Eurozone banking authority has been set up (2013). it’s too early to declare victory on the Eurozone sovereign debt crisis and the financial markets still need more action from Europe.
The market expects the ECB to cut interest rates by 25 basis points to a euro-era record low of 0.75%, as German inflation has fallen sharply in recent months and is currently at 1.7% annual pace
JPY:
GBP: The Bank of England also meets on Thursday and the market expects a further GBP50bn of quantitative easing. Bad GDP reading last week.
Growth: the Eurozone summit may have eased credit fears but it hasn’t addressed growth issues in the currency bloc, which threatens China’s economy since the currency bloc is a major trade partner. , the US economy has seen economic confidence get most affected by the Eurozone debt crisis along with a weak jobs outlook.

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	Many Yes!
5	QE3	Not off the table	Yes
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD back 1.256
USDCHF flat at 0.95
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”
Until we get a clear picture on the outlook for Europe and the fate of the currency bloc then it’s hard to pick a direction for stocks and other risky assets.
USD: We will be looking for a weekly close above 80.10 in USDJPY to get constructive on this pair. Added to that a successful outcome of the EU Summit next week could give the green light to dollar bulls to push this pair even higher.
EURUSD: we believe EURUSD is likely to be range bound into the ECB meeting on Thursday, stocks may extend recent gains. EURUSD gains may be capped around 1.2750 – the high post the Greek election, while we believe 1.2550 is good support for the time being. US Treasury yields rise at a faster pace than German bond yields as rate cuts by the ECB may anchor the front-end of the German rate curve at a very low level. This would give the dollar the yield advantage and could weigh on EURUSD (1.2400 then 1.2250)
GBPUSD: we don’t think that we will see much of an impact on sterling because of QE. GBPUSD is likely to move in line with overall risk appetite, 1.5730 is the near-term resistance level while 1.58 is another level that could be sticky. 1.5530 remains good support.
Key events:
Monday CNY HSBC Final Manufacturing PMI 48.1 , USD ISM Manufacturing PMI 52.1 53.5
Tuesday: AUD Cash Rate 3.50% 3.50%
Wednesday: AUD Retail Sales m/m 0.3% -0.2%
Thursday: EUR Spanish 10-y Bond Auction 6.04|3.3, GBP Official Bank Rate 0.50% 0.50%, EUR Minimum Bid Rate 0.75% 1.00%, USD ADP Non-Farm Employment Change 101K 133K, USD ISM Non-Manufacturing PMI 53.1 53.7,
Friday: USD Non-Farm Employment Change 92K 69K, USD Unemployment Rate 8.2% 8.2%
Saturday:
Sunday:

Prices and Risk on/off view

Date	CRB	WTI Oil	Copper	Gold	Silver	SP500	Tnote	Bunds	VIX
24-giu	267	79.7	331	1566	26.7	1335	1.67	1.58	18.1
01-lug	284	84.9	349	1604	27.6	1362	1.64	1.58	17.1
Difference	6.37%	6.52%	5.44%	2.43%	3.37%	2.02%	-1.80%	0.00%	-5.52%

Date	Dollar Index	AUDUSD	USDCHF	USDJPY	EURUSD	AUDJPY	Risk on/off
17/06/2012	82.2	1.006	0.95	80.4	1.257	80.96	2.39
01/07/2012	81.6	1.02	0.947	79.8	1.267	81.9	6.58
Difference	-0.73%	1.39%	-0.32%	-0.75%	0.80%	1.16%	1.75

RORO (30): +0.59 (-0.6)

Weekly Briefing 120624

1.  Review.

“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” . Ben Bernanke and co. decided to extend the Operation Twist programme until the end of the year rather than embark on more quantitative easing. The market reaction was to sell stocks and buy the dollar.
“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.”IFO Better than expected, generally not bad in light of weak PMI's. Market ignores.
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”
Trades
Closed everything

2.  Analysis.

"Fundamental analysis"
Monday: Nothing
Tuesday: EUR German ZEW Economic Sentiment -16.9 3.8 10.8 %
Wednesday: JPY Trade Balance -0.66T -0.36T -0.51T
Thursday: CNY HSBC Flash Manufacturing PMI 48.1 48.4; EUR German Flash Manufacturing PMI 44.7 45.3 45.2; USD Philly Fed Manufacturing Index -16.6 0.7 -5.8
Friday: EUR German Ifo Business Climate 105.3 106.1 106.9
Saturday:
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
Fed: .decided to extend the Operation Twist programme until the end of the year rather than embark on more quantitative easing. This extension shouldn’t impact the size of the Fed’s balance sheet, and thus should only have a marginal impact on the dollar. Although the Fed may not give in to the markets’ wails for more liquidity right now, it left the QE card on the table to use on an even rainier.
EUR: There is also an immense amount of pressure on Merkel to widen the remit of the ECB so that it can act as a lender of last resort. This would give the ECB the power to print euros. Essentially if Europe’s leaders can agree on a compromise between providing more support for troubled economies and centrally managing national budgets then we could come to some sort of compromise resolution.
JPY: USDJPY was a big mover as the market priced in the prospect of the Bank of Japan doing more stimulus compared to the Fed
GBP: . the market is now expecting GBP50bn of QE from the Bank at its meeting on 5th July. What has been interesting is the relative resilience of sterling to this news. Rather than cause it to drop off a cliff as some would expect, the reaction in GBP was fairly muted
Growth: It was the sharp decline in global growth indicators that caused stocks, especially in the US, to really sell off last Thursday. China, Germany and the US all registered weak manufacturing growth in recent weeks

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	Many Yes!
5	QE3	Not off the table	Yes
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD back 1.256
USDCHF flat at 0.95
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”
Until we get a clear picture on the outlook for Europe and the fate of the currency bloc then it’s hard to pick a direction for stocks and other risky assets.
USD: We will be looking for a weekly close above 80.10 in USDJPY to get constructive on this pair. Added to that a successful outcome of the EU Summit next week could give the green light to dollar bulls to push this pair even higher.
EURUSD: Next week is mainly going to be about this summit. Lots of noise beforehand. I think there is a good chance that they will make big decisions and as such after next week there might be cause for a EUR relief rally. The outcome of this summit could be critical for financial markets in the medium-term. A disappointing outcome could see EURUSD break below 1.2450 and head back towards the recent 1.2350 lows then towards 1.20. However, if decisive, bold action is taken then a march higher above the temporary top at 1.2750 towards 1.30 maybe possible
GBPUSD: We think that GBPUSD will end up being moved more by overall risk appetite rather than by policy actions from the Bank of England. Thus we expect it to consolidate between 1.5500 and 1.5750 in the lead up to the EU summit later this week
Key events:
Monday: USD New Home Sales 347K 343K
Tuesday: USD CB Consumer Confidence 64.0 64.9
Wednesday: USD Core Durable Goods Orders m/m 1.0% -0.9%
Thursday: EUR EU Economic Summit, USD Unemployment Claims 385K 387K
Friday: CAD GDP m/m 0.2% 0.1%
Saturday:
Sunday: CNY Manufacturing PMI 50.4

Prices and Risk on/off view

RORO (30): -0.59 (-1.15)

3.  Plan