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FOREX: US Dollar Advance to Resume Even as Clouds Clear Over Greece

By , Currency Strategist
01 July 2011 07:13 GMT

Talking Points

  • US Dollar Likely to Rebound as Spotlight Turns to Global Growth Concerns
  • Chinese PMI Shows Weakest Manufacturing Growth in 28 Months in June
  • Franc Slumps Amid Reversing Regional Safe-Haven Flows, Intervention Fears

With a second Greek vote – this one on the implementation of newly adopted austerity measures approved on Wednesday – sailing through with little fanfare, it appears investors have already moved on from the debt crisis in the Mediterranean country that had consumed the markets’ attention over recent weeks. Indeed, with Greece now cleared to receive a 12 billion euro tranche of aid to cover its immediate obligations and likely to be approved for a further 110 billion aid package to tide things over until 2014 at an EU sit-down on July 3rd, the threat of immediate default has seemingly passed.

The spotlight now shifts to economic growth considerations. Chinese Manufacturing PMI figures showed factory sector growth slowed to the weakest in 28 months in June, marking a post-Great Recession low. Meanwhile, the final revision of the analogous gauge for the Euro Zone is expected to confirm the weakest reading in 18 months and the US ISM manufacturing report is due to reveal the worst outcome since August 2009. Japanese data released overnight was likewise ominous. The sharp deterioration in growth prospects for all of the world’s leading economic engines telegraphed in such outcomes – particularly against the backdrop of unwinding fiscal and monetary stimulus – ought to weigh heavily on investor confidence and boost the safe-haven US Dollar anew.

With this in mind, the timing of the reversal may be tough to pin down as liquidity drains ahead of the US Independence Day holiday that will see Wall Street closed on Monday. Indeed, some traders are already packing in for the long weekend. Looking at Euro futures as a crude indicator, trading volume hit the lowest in six days today. This means follow-through maybe lacking even as the ISM reading crosses the wires tomorrow, with markets delaying any significant directional move until next week’s closely watched US Employment release. S&P 500 stock index futures – a proxy for sentiment at large – reinforce expectations of a lackadaisical attitude and weak conviction, trading virtually flat in late Asian hours.

The Swiss Franc underperformed in otherwise muted overnight trade, with the currency coming under intense selling pressure having strengthened considerably in the midst of recent Euro Zone debt crisis fears as capital reversed course following today’s affirmative second round of Greek voting. A worrying story outlining the Franc’s role as a conduit for contagion in the event of a default within the Euro Zone compounded selling pressure.

Central European countries have been financing mortgages in Francs because of Switzerland’s historically low interest rates for some time. Stratfor – a global intelligence advisory – points out that, “currently, 53 percent of outstanding mortgages in Poland and about 60 percent of those in Hungary are denominated in Francs”. This means that if renewed sovereign stress in any of the so-called "PIIGS" countries pushes the Franc higher on safe-haven demand, servicing those mortgages will become untenable.

This threatens to produce sharp losses for Central European lenders and the core European banks (particularly those in Austria) invested in them, raising concerns that policymakers on the Continent will be pressured to act against the Swiss currency to cut off its ability to transmit a crisis on the Euro Zone periphery region-wide. The currency slumped as much as 0.7 percent against its leading counterparts.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

AiG Performance of Manufacturing Index (JUN)

52.9

-

47.7

23:30

JPY

Household Spending (YoY) (MAY)

-1.9%

-1.7%

-3.0%

23:30

JPY

Jobless Rate (MAY)

4.5%

4.8%

4.7%

23:30

JPY

Job-To-Applicant Ratio (MAY)

0.61

0.60

0.61

23:30

JPY

Tokyo Consumer Price Index (YoY) (JUN)

-0.2%

-0.1%

-0.1%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (JUN)

0.1%

0.2%

0.1%

23:30

JPY

Tokyo Consumer Price Index Ex Food (JUN)

0.1%

0.1%

0.1%

23:30

JPY

National Consumer Price Index Ex Food (MAY)

0.1%

0.0%

-0.1%

23:30

JPY

National Consumer Price Index (YoY) (MAY)

0.3%

0.2%

0.3%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (MAY)

0.6%

0.5%

0.6%

23:50

JPY

Tankan Large Manufacturers Index (2Q)

-9

-7

6

23:50

JPY

Tankan Non-Manufacturing Index (2Q)

-5

-4

3

23:50

JPY

Tankan Large Manufacturers Outlook (2Q)

2

2

2

23:50

JPY

Tankan Non-Manufacturing Outlook (2Q)

-2

0

-1

23:50

JPY

Tankan Large All Industry Capex (2Q)

4.2%

2.3%

-0.4%

1:00

AUD

HIA New Home Sales (MoM) (MAY)

-0.2%

-

0.2%

1:00

CNY

PMI Manufacturing (JUN)

50.9

51.5

52

2:30

CNY

HSBC Manufacturing PMI (JUN)

50.1

-

51.6

5:00

JPY

Vehicle Sales (YoY) (JUN)

-23.3%

-

-38.0%

6:30

AUD

RBA Commodity Price Index (JUN)

109.4

-

107.1 (R-)

6:30

AUD

RBA Commodity Index SDR (YoY) (JUN)

28.2%

-

29.1% (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:30

CHF

SVME-Purchasing Managers Index (JUN)

57.8

59.2

Medium

7:45

EUR

Italian PMI Manufacturing (JUN)

50.6

52.8

Low

7:50

EUR

French PMI Manufacturing (JUN F)

52.5

52.5

Low

7:55

EUR

German PMI Manufacturing (JUN F)

54.9

54.9

Medium

8:00

EUR

Italian Unemployment Rate s.a. (QoQ) (1Q)

8.3%

8.5%

Low

8:00

EUR

Italian Unemployment Rate s.a. (MoM) (MAY P)

8.1%

8.1%

Low

8:00

EUR

Euro-Zone PMI Manufacturing (JUN F)

52.0

52.0

Medium

8:30

GBP

PMI Manufacturing (JUN)

52.3

52.1

Medium

9:00

EUR

Italian Deficit to GDP (YTD) (1Q)

-

4.5%

Low

9:00

EUR

Euro-Zone Unemployment Rate (MAY)

9.9%

9.9%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4440

1.4600

GBPUSD

1.5978

1.6194

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01 July 2011 07:13 GMT