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Fed Meeting Minutes May Amplify China, Greece Fueled Risk Aversion

Fed Meeting Minutes May Amplify China, Greece Fueled Risk Aversion

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Aussie Dollar Drops, Yen Gains as China and EU News Fuels Risk Aversion
  • Minutes from June FOMC May Boost Rate Hike Bets, Hurt Sentiment Further
  • See Economic Releases Directly on Your Charts with the DailyFX News App

The Australian Dollar underperformed in overnight trade – falling as much as 1.1 percent on average against its leading counterparts – as turmoil in China and an ominous end to yesterday’s EU summit fueled risk aversion. The safety-linked Japanese Yen outperformed, rising as much as 0.6 percent against the majors.

The MSCI Asia Pacific regional benchmark stock index plunged over 2 percent as Chinese shares plunged, yielding the worst performance since 2007 for the Shanghai Composite equities benchmark. The rout saw trading halted in 43 percent of China-listed shares. Meanwhile, EU officials took a hard line with Greece after the country rejected the terms of a funding deal proposed by its creditors at a referendum last weekend. Rhetoric following yesterday’s sit-down in Brussels suggested Athens has until an EU-wide summit on Sunday to change its tune or make so-called “Grexit” a near-eventuality.

Looking ahead, the spotlight turns to the Federal Reserve as it publishes minutes from June’s FOMC meeting. While the central bank flattened its expected tightening trajectory (compared with the March assessment), officials continued to call for two rate hikes in 2015. This stands in stark contrast with the markets’ priced-in outlook, which sees Chair Yellen and company waiting until early 2016 to resume policy normalization.

The situation echoes a similar one last year, when a dovish shift in investors’ bets following a soft first quarter was disappointed as the Fed continued to taper QE asset purchases and ended the program on schedule. If the Minutes document hints at a parallel scenario this time around, fears of imminent stimulus withdrawal may compound risk aversion. This will probably to weigh on sentiment-geared FX (such as the commodity bloc currencies) and fuel further strength in the US Dollar and Yen.

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Asia Session

GMTCCYEVENTACTEXPPREV
23:01GBPBRC Shop Price Index (YoY) (JUN)-1.3%--1.9%
23:50JPYBoP Current Account Balance (¥) (MAY)1880.9B1570.2B1326.4B
23:50JPYBoP Current Account Adjusted (¥) (MAY)1636.3B1375.2B1274.2B
23:50JPYTrade Balance BoP Basis (¥) (MAY)- 47.3B- 283.8B- 146.2B
23:50JPYBank Lending Incl Trusts (YoY) (JUN)2.5%-2.6%
23:50JPYBank Lending Ex-Trusts (YoY) (JUN)2.6%2.5%2.7%
04:30JPYBankruptcies (YoY) (JUN)-4.73%--13.18%
05:00JPYEco Watchers Survey Current (JUN)51.053.053.3
05:00JPYEco Watchers Survey Outlook (JUN)53.554.054.5

European Session

GMTCCYEVENTEXPPREVIMPACT
07:00GBPHalifax House Prices (MoM) (JUN)0.3%-0.1%Low
07:00GBPHalifax House Price (3M/Y) (JUN)8.3%8.6%Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.07091.08521.09321.09951.10751.11381.1281
GBPUSD1.51051.53001.53811.54951.55761.56901.5885

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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