Focus reverts to Greek budget vote on Tuesday, but tensions to persist even if passed.
Comments from EU Summit, Chinese Premier Wen may buoy EUR sentiment before then.
IEA actions smack of desperate measures, but if oil stays down H2 growth prospects are improved.
EUR recovered from a very shaky London session yesterday, on the news that Greece had reached agreement with the EU/IMF inspection team on a budget package. The focus thus reverts to next Tuesday’s parliamentary vote. There is also a vote currently scheduled for next Thursday to approve legislation necessary for Budget enactment, but we assume that if the budget is passed, then this will be a formality. There was some positive news of Belgian and Greek banks agreeing to roll over Greek debt, but the bigger issue is whether the ratings agencies cooperate by not classifying a rollover as a default. And the Belgian PM says opposition support for budget is not a requirement for the next tranche of aid – so approval of the next EUR 12bn on July 3 should also be a formality if the budget is passed. It does not mean though that the IMF/EU has abandoned its demand for ‘national unity’ as a precondition for the next bailout package. While passage of the budget looks likely, it is clear that tensions will persist even after July 3.
Oil prices fell sharply after the IEA decided to release 60mn barrels of oil from strategic reserves. Although the move risks being interpreted as a last desperate act by policymakers otherwise out of bullets,we see lower oil as positive for USD for a number of reasons: the lower oil import bill improves the trade deficit, but more importantly, consumers can spend their limited cash on other things. There’s also the indirect impact of lower oil revenues leading to less FX diversification flows by oil exporters. But the issue is how long the impact will last: 60mn barrels represent only about 17 hours of global demand and unless the action is followed up by further releases the impact should be limited and temporary.
For today, we expect markets to remain illiquid with investors still on the sidelines. Data will again come second to comments: Chinese Premier Wen is now in Europe and we can therefore expect to hear strong affirmations of support for the Euro-periphery. The second day of the EU Heads of State meeting should also be expected to come out with a more positive outlook for Greece. Both are wholly predictable, but should still provide tangible support for EURUSD. Thus our bias for the day would be to buy risk on dips, although position squaring ahead of the weekend will also feature.
Economic event risk of most note Friday comes form Germany in the form of the IFO survey and US Durable Goods orders. After Thursday’s PMI data, the market should be braced for a weaker IFO outcome than the 113.4 market median for the Business climate reading (from 114.2) and 106.3 for expectations (from 107.4). On Durable goods orders, a modest bounce from April’s falls is expected (+1.5% from -3.6% on headline).
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/06/Daily-FX-Str_Europe_24June2011.pdf
BNP Paribas
Corporate & Investment Banking
if passed.
Comments from EU Summit, Chinese Premier Wen may buoy EUR sentiment before
then.
IEA actions smack of desperate measures, but if oil stays down H2 growth
prospects are improved.
EUR recovered from a very shaky London session yesterday, on the news that
Greece had reached agreement with the EU/IMF inspection team on a budget
package. The focus thus reverts to next Tuesday's parliamentary vote. There
is also a vote currently scheduled for next Thursday to approve legislation
necessary for Budget enactment, but we assume that if the budget is passed,
then this will be a formality. There was some positive news of Belgian and
Greek banks agreeing to roll over Greek debt, but the bigger issue is
whether the ratings agencies cooperate by not classifying a rollover as a
default. And the Belgian PM says opposition support for budget is not a
requirement for the next tranche of aid – so approval of the next EUR 12bn
on July 3 should also be a formality if the budget is passed. It does not
mean though that the IMF/EU has abandoned its demand for 'national unity' as
a precondition for the next bailout package. While passage of the budget
looks likely, it is clear that tensions will persist even after July 3.
Oil prices fell sharply after the IEA decided to release 60mn barrels of oil
from strategic reserves. Although the move risks being interpreted as a last
desperate act by policymakers otherwise out of bullets,we see lower oil as
positive for USD for a number of reasons: the lower oil import bill improves
the trade deficit, but more importantly, consumers can spend their limited
cash on other things. There's also the indirect impact of lower oil revenues
leading to less FX diversification flows by oil exporters. But the issue is
how long the impact will last: 60mn barrels represent only about 17 hours of
global demand and unless the action is followed up by further releases the
impact should be limited and temporary.
For today, we expect markets to remain illiquid with investors still on the
sidelines. Data will again come second to comments: Chinese Premier Wen is
now in Europe and we can therefore expect to hear strong affirmations of
support for the Euro-periphery. The second day of the EU Heads of State
meeting should also be expected to come out with a more positive outlook for
Greece. Both are wholly predictable, but should still provide tangible
support for EURUSD. Thus our bias for the day would be to buy risk on dips,
although position squaring ahead of the weekend will also feature.
Economic event risk of most note Friday comes form Germany in the form of
the IFO survey and US Durable Goods orders. After Thursday´s PMI data, the
market should be braced for a weaker IFO outcome than the 113.4 market
median for the Business climate reading (from 114.2) and 106.3 for
expectations (from 107.4). On Durable goods orders, a modest bounce from
April´s falls is expected (+1.5% from -3.6% on headline).