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FOREX: US Dollar in a Holding Pattern Amid Greece Aid Uncertainty

FOREX: US Dollar in a Holding Pattern Amid Greece Aid Uncertainty

2011-06-28 07:05:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Major Currencies Range-Bound Ahead of Greece Austerity Vote
  • US Dollar Outlook Remains Cautiously Negative in the Near Term
  • British Pound Down as BOE’s Posen Talks Up Dovish Rates Outlook
  • Japanese Yen Gains on Better-than-Expected Retail Trade Data

Tomorrow’s Greek austerity vote remains in the spotlight, with a tense atmosphere prevailing around the financial markets. Traders seemed to be increasingly optimistic about Greece’s ability to avoid default (for now) in US and Asian trade, dragging shares higher to the detriment of the safe-haven US Dollar, with the dominant argument mirroring the logic we discussed in detail yesterday. Confidence took a hit late in the overnight session however after civil unrest gripped Greece anew while an ECB policymaker threatened the administration in Athens.

Greek labor unions launched the fourth general strike of the year, shutting down government services, public transport and disrupting flights. Meanwhile, after European Central Bank policymaker Juergen Starkwas quoted in a Die Welt article saying he does not expect the international community to continue supporting Greece past July if the austerity package is not passed, adding ominously that “there is only this one plan A” that would allow further aid to be dispersed.

Looking ahead, S&P 500 stock index futures – a proxy for market-wide sentiment – show little conviction ahead of the opening bell in Europe, pointing to indecision. Currency markets are mirroring this lack of directional confidence, with most of the majors little changed against the greenback. On balance, we maintain a cautiously negative outlook for the greenback over the coming 24 hours. Despite the unsettling recent news-flow, the bottom line for Greece remains unchanged. Indeed, Prime Minister Papandreou’s survival of last week’s confidence poll in and of itself argues for austerity’s successful passage. Still, the current environment is highly unstable, keeping traders on the defensive until the vote is in the rear-view mirror and suggesting the majors may remain in choppy ranges for the time being.

The British Pound slumped in otherwise quiet Asian trade after perennially dovish Bank of England policymaker Adam Posen said yesterday’s report from the Bank of International Settlements criticizing low UK interest rates is “nonsense”. Posen argued that there is little evidence of rising UK inflation expectations, fueling bets that the BOE will not be unwinding monetary stimulus any time soon. The Japanese Yen narrowly outperformed in the wake of better-than-expected Retail Trade figures.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Retail Trade (YoY) (MAY)

-1.3%

-2.2%

-4.8%

23:50

JPY

Retail Trade s.a. (MoM) (MAY)

2.4%

1.2%

4.1%

23:50

JPY

Large Retailers' Sales (MAY)

-2.4%

-1.9%

-1.9%

5:19

JPY

Small Business Confidence (JUN)

43.1

-

37.8

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

EUR

German Consumer Price Index (MoM) (JUN P)

0.1%

0.0%

Medium

-

EUR

German Consumer Price Index (YoY) (JUN P)

2.3%

2.3%

High

-

EUR

German CPI – EU Harmonized (MoM) (JUN P)

0.1%

-0.2%

Medium

-

EUR

German CPI – EU Harmonized (MoM) (JUN P)

2.5%

2.4%

High

6:00

EUR

German Import Price Index (MoM) (MAY)

-0.3%

0.3%

Low

6:00

EUR

German Import Price Index (YoY) (MAY)

8.6%

9.4%

Low

6:00

EUR

German GfK Consumer Confidence Survey (JUL)

5.3

5.5

Medium

6:00

CHF

UBS Consumption Indicator (MAY)

-

1.58

Medium

8:00

EUR

Italian Producer Price Index (MoM) (MAY)

0.1%

0.6%

Low

8:00

EUR

Italian Producer Price Index (YoY) (MAY)

4.9%

5.5%

Low

8:30

GBP

Total Business Investment (QoQ) (1Q F)

-7.1%

-7.1%

Low

8:30

GBP

Total Business Investment (YoY) (1Q F)

-3.2%

-3.2%

Medium

8:30

GBP

Current Account (£) (1Q)

-4.7B

-10.5B

Medium

8:30

GBP

Gross Domestic Product (QoQ) (1Q F)

0.5%

0.5%

High

8:30

GBP

Gross Domestic Product (YoY) (1Q F)

1.8%

1.8%

High

9:00

EUR

Italian Business Confidence (JUN)

101

101.3

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4162

1.4419

GBPUSD

1.5874

1.6070

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