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