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Talking Points

  • US Dollar Soars on Safe-Haven Demand as Stocks Slide in Asia
  • Disappointing Trade Balance Figures Sink New Zealand Dollar
  • Uneasy Optimism on Greek Budget Vote to Boost Risk Appetite

The US Dollar outperformed in overnight trade, rising as much as 0.4 percent on average against the major currencies, capitalizing on safe-haven demand as stocks fell in Asia. The MSCI Asia Pacific regional equity index fell 1.1 percent, with investors uneasy ahead of a Greek vote to approve new austerity measures, threatening to trigger a default that destabilized global credit markets. The greenback’s advance may prove to be short-lived however as markets become increasingly confident in the Greece’s ability to ratify the plan.

The Greek Parliament will vote on a new five-year austerity plan – a scheme including government spending cuts, tax increases, and a sale of some publicly-owned assets – on Wednesday. A separate vote will be held the following day on the plan’s implementation. Kathimerini, an Athens-based newspaper, reports that as many as four members of the ruling Pasok party may vote against the measure. That would still give Greek Prime Minister George Papandreou enough votes to get the measure through. Pasok holds a 155-seat majority in the 300-member parliament and Papandreou needs at least 151 votes in favor of the austerity plan to pass it.

On balance, it seems overwhelmingly unlikely that the Prime Minister will fall short on the vote tally and fail to pass the austerity package. Indeed, it was widely understood that the purpose of the confidence vote he called for and subsequently survived last week was specifically designed to establish a mandate to negotiate a second EU/IMF aid deal given a premise of further fiscal belt-tightening. This means that Pasok has implicitly signed off on austerity already, with this week’s follow-up vote largely a ceremonial affair that will allow some of the party’s members to vote “no” without affecting the overall outcome, scoring some points with their regional electorate.

Markets surely understand this, so US Dollar gains may prove limited in the first half of the week, with most investors likely viewing a successful vote as their base-case scenario and positioning as such. Notably, S&P 500 stock index futures have reversed Asia-session losses and are now in positive territory. This suggests the overnight selloff may have had more to do with follow-through on Friday’s Wall Street price action rather than a reflection of investors’ mood for the days ahead, which would not be unprecedented. If confidence continues to recover over the coming, the US unit may find itself on the defensive in short order (although we expect the pullback to be temporary, with the Dollar broadly supported in the coming months by deteriorating global economic growth expectations).

Related: NZ Trade Balance Unexpectedly Falls, Fuels NZD Selling

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Trade Balance (NZ$) (MAY)

605M

1000M

1148M (R+)

22:45

NZD

Trade Balance YTD (NZ$) (MAY)

1067M

1410M

1232M (R+)

22:45

NZD

Exports (NZ$) (MAY)

4616M

4725M

4678M (R+)

22:45

NZD

Imports (NZ$) (MAY)

4021M

3750M

3530M (R-)

23:01

GBP

Lloyds Business Barometer (JUN)

36

-

14

23:01

GBP

Hometrack Housing Survey (MoM) (JUN)

-0.1%

-

-0.1%

23:01

GBP

Hometrack Housing Survey (YoY) (JUN)

-3.9%

-

-3.7%

2:00

CNY

Industrial Profits YTD (YoY) (MAY)

27.9%

-

29.7%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

EUR

Italian Hourly Wages (MoM) (MAY)

-

0.1%

Low

8:00

EUR

Italian Hourly Wages (YoY) (MAY)

-

1.8%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4048

1.4282

GBPUSD

1.5890

1.6020

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To receive future articles by email, please contact Ilya at ispivak@dailyfx.com