Greece holds the key to market sentiment this week

Weekly Outlook

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22nd June 2015 by Richard Perry, Market Analyst

Macro Commentary

Are we about to see the can kicked down the road yet again on Greece? The current debt obligations will come to a head

this week and we will find out whether Greece will default, which would dramatically increase the chances of a Eurozone

“Grexit”. Around €6bn of capital has taken flight from Greek banks in the past week (around €44bn in the year to date).

Greek banks are facing serious liquidity issues that the ECB will need to support. On the 30th June Greece is due to repay

€1.6bn to the IMF for its debts due in June. Today, the Eurozone countries are holding an emergency leaders summit in

an attempt to finally accept that Greece has done enough to allow the release of a €7.2bn final tranche of bailout money

that it needs to pay its debts. The Greeks have put together a proposal over the weekend, that supposedly includes a

series of spending cuts and tax rises. Initial signs are promising, especially if you look at the market reaction with the

German Bund yield reversing its track lower (suggesting less of a flight to safety), whilst the DAX is also sharply higher. If

something concrete is agreed then markets could fly in the coming days. For several weeks sentiment has been hit by

Greece, finally we could be ready for the relief rally. Let’s see if there’s a deal first though.

have

WHEN: Wed, 25th June, 1330BST

LAST: 1.2%

FORECAST: 1.1%

Impact: At the latest FOMC press conference, Fed

Chair Janet Yellen suggested that the committee

needed to see further evidence that inflation was

on a sustainable path back towards the 2% target.

The Fed’s preferred measure of inflation is

Personal Consumption Expenditure which has

been stubbornly low in recent months and the

expectation of +0.1% for the month is not going to

show an improvement again. The dollar traders

will be keenly watching the PCE data this week as

any improvement will add to the FOMC hawks’

argument. Treasury yields will also react whilst

“good news is bad” for Wall Street still.

Must watch for: Personal Consumption Expenditure

Key Economic Releases

Date Time Country Indicator Consensus Last

Mon 22nd Jun 15:00 US Existing Home Sales 5.26m 5.04m

Tue 23rd Jun 02:45 China HSBC Flash Manufacturing PMI 49.4 49.1

Tue 23rd Jun 10:00 UK BoE Inflation Report Hearings

Tue 23rd Jun 13:30 US Durable Goods Orders (MoM) +0.6% +0.5%

Tue 23rd Jun 15:00 US New Home Sales 530,000 520,000

Wed 24th Jun 09:00 Eurozone German Ifo Business Climate 108.1 108.5

Wed 24th Jun 15:30 US Crude Oil Inventories -2.68m

Thu 25th Jun 13:30 US Personal Consumption Expenditure (core) +1.1% +1.2%

Fri 26th Jun 03:30 Japan CPI (core) 0.0% +0.3%

Fri 26th Jun 15:00 US UoM Consumer Sentiment (final) 94.6 94.6

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US core Personal Consumption Expenditure

N.B. Please note all times are BST (GMT+1), data source Reuters

Weekly Outlook 22nd June 2015

by Richard Perry, Market Analyst

Foreign Exchange

Looking at the longer term chart of the Dollar Index could instantly give dollar bulls a case of the wobbles. Having

previously broken the long term 10 month uptrend, support at 93.25 has the potential to turn out to be the neckline of a

huge head & shoulders top. This chart has clear links the to bull move on EUR/USD (the euro accounts for around 57% of

the Dollar Index) that has resulted in a move back towards the key resistance band at $1.1465. The fact that Cable has

already broken out may add to the jitters of the dollar bulls though. My expectation is that EUR/USD will continue to

trade in the range, which would mean that the top pattern on Dollar Index will remain intact. Furthermore, there are the

bullish setups for the dollar versus the Japanese yen, the Aussie and the Kiwi, with the Kiwi surely weighed down by

continued dovish rhetoric from the RBNZ. The outlook on the Canadian Loonie remains rangebound and whilst the Swissy

has drifted higher in the past few weeks, the assertion from the SNB that the Swissy is overvalued should help to keep a

cap on any gains. A deal for Greece could though drive the euro higher. Resistance at $1.1460 on EUR/USD is crucial.

WATCH FOR: Forex market will move off sentiment driven from the progress of the Greek negotiations.

The batch of US data will add further weight to arguments over the Fed’s monetary policy in the coming

months. The UK inflation report hearings will have a big impact on sterling.

EUR/USD

Watch for: The euro remains supported and

pressure is growing for a test of $1.1465

Outlook: Despite the uncertainty over

Greece, a dovish lean from the Fed has

helped to support EUR/USD and this means

that the key resistance at $1.1460 remains

under pressure. This is an absolutely critical

resistance (see above). Interestingly the

momentum indicators do not point towards

an imminent breakout, with the RSI

continuing to languish under 60. This still

makes me believe that even if there were to

be a breakout then it is still likely to be a

false breakout.

USD/JPY

Watch for: A higher low forming around the

key 122.00 breakout

Outlook: For a few weeks I have been talking

about a retreat on USD/JPY back towards the

old breakout at 122.00. Along with the fact

that the 50% Fibonacci retracement of the

118.86/125.85 bull run comes in at 122.35

and has been holding for the past couple of

weeks as a basis of support suggests to me

that this is part of the process of building for

the next key low. Although momentum

indicators are still in correction mode I still

see Dollar/Yen as a medium to longer term

bullish outlook and despite any safe haven

flows that could be seen this week we may

also see the next low too.


FX Outlook

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Indices

Finally, Wall Street had something domestic to drive sentiment rather than just bothering about the “will they, won’t

they” of Greece. The dovish lean from the Fed boosted sentiment last week, leading to an upside break to an all-time

high on the NASDAQ. The S&P 500has been a touch more reserved as it still has a Greek twitch, but still it is clear that

Wall Street continues to weather the storm of uncertainty far better than its European counterparts. The DAX volatility

remains high and has been growing in June. With the increased prospect of a Greek deal the DAX has flown higher and

you can expect that this week the volatility will be ramped up even more, with every rumour of progress or lack thereof

(of which there have been a load) being leapt upon by day traders. The DAX has already corrected over 10% from the

12,390 all time high in mid-April and there will be debate over how much of a potential Greek default has already been

priced in. If a deal goes through then you can expect a continuation of the relief rally. However further disappointments

will drive investors into the safe haven of German Bunds yet again which would certainly weigh significantly on sentiment

for the DAX. The French CAC has been trading almost stride for stride with the DAX recently, whilst FTSE 100 remains the

market’s equivalent of the lost puppy, seemingly chasing the DAX’s tail wherever it goes but in a less volatile fashion.

WATCH FOR: Eurozone leaders summit will impact on market sentiment as will any subsequent newsflow.

Wall Street will focus on the inference that US data flow has on the Fed with good news bad for equities

DAX Xetra

Watch for: A move above 11,453 is a

technical upside break, but Greece is key

Outlook: The DAX has been trading between

the 38.2% and 23.6% Fibonacci retracement

levels of the 8355/12390 bull run between

10,850/11,438 for the past few weeks as

newsflow has shifted back and forth on

Greece. Unless there is something concreted

coming out of today’s Eurozone leaders

summit this volatility is likely to continue.

Key resistance comes in the reaction high at

10,453 and a break would open further

upside towards 11,920. Support comes in at

10,979.

FTSE 100

Watch for: Resistance at 6870 being tested

on a successful Greece deal

Outlook: A sharp rally early on Monday is

looking to turn around sentiment that had

been increasingly concerning. It is clear that

Greece has been a sizable drag on equities

whilst the flip-side of that means that if

there is a deal agreed between Greece and

its creditors then a significant rally can be

expected. The initial resistance is the lower

reaction high at 6870 and a break above this

level would be a key sign of a confirmed

change in sentiment. Support is now at

6625.


INDEX Outlook

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Other Assets: Commodities & Bonds

The precious metals had a double shot in the arm last week amid the possibility of a Greece default (flight to safety) and

a dovish Federal reserve (negative for the dollar), however with heightened prospects of a deal for Greece, the safe

haven trade is beginning to unwind. However, sensitivity is likely to remain elevated as the negotiations with Greece as

yet unresolved. US data will continue to be poured over for implications for a possible Fed rate hike in September which

will have a negative correlation to the prices of precious metals. The oil prices continue to trade rangebound which on

WTI is now over two months old.

The safe haven flows that had dragged the yields on the 10 year German Bund back below 0.800% last week are

beginning to reverse once more as the prospects of a Greece deal have picked up. This is causing big volatility and a

retracement on the core/periphery Eurozone spread (measured as Spanish versus German). The dovish Fed has resulted

in a “bull flattening” across the US yield curve, with the 10 year yield back below the support around 2.30%.

WATCH FOR: Focus remains squarely on Greece for the safe haven trades and the announcement of key US

data (this week predominantly core PCE and Durable Goods Orders).

Gold

Watch for: A neutral near term outlook

driven by US data

Outlook: The bearish outlook has been

neutralised by a sharp rally and now we

are back in the position where gold is

increasingly sensitive to US data

announcements and also the progress on

Greece. Technically the indicators are

increasingly neutral once more with the

RSI back to seemingly trading between

40/60 and moving averages flat again. A

close above $1205 would suggest a rally

within the range towards the

$1225/$1232 resistance again.

German 10 year Bund yield

Watch for: Recent correction to find

support if a Greece deal is confirmed

Outlook: Although the volatility on the Bund

yield had been looking to calm down, the

technicals have been correcting. However

trading is moving off Greek developments

now this could leave support in place at

0.727%. This comes just above the support

at 0.681% and with the RSI having unwound

towards 50 before picking up again this

could be a chance to buy potentially.

Essentially though it will be a news driven

more with Greece so prominent in the safe

haven flows. The German Bund yield can be

expected to pick up should hold the support

if a deal is agreed.


COMMODITIES & BONDS Outlook

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Weekly Outlook 22nd June2015


Greece holds the key to market sentiment this week

Economy & Finance

Transcript of Greece holds the key to market sentiment this week