A revised agenda for the Greek parliament, with the MTFS discussed today but not voted for until Wednesday afternoon, prolongs uncertainty and will only add to the current erratic behaviour of markets. While a “yes” vote is more likely than not, the non-negligible risk of a “no” vote and the risk of a substantial reaction to this is causing investors to wait on the sidelines. Even after the vote, the ISM survey on Friday and the holiday weekend in the US is likely to prevent heavy position taking. In the meantime EURUSD likely pullback and remain in its recent 1.41-1.43 trading range. Risk-on currencies, CAD and AUD, where positioning has already been trimmed, sideways trading is likely to continue until uncertainty fades.
BoE Posen spoke overnight disputing the BIS’s recent comments that the BoE should raise rates. This is no surprise given Posen’s dovish stance but today’s appearance of MPC members before the Treasury Select Committee is important for sterling today. A reiteration by MPC members of recession fears taking over from inflation fears, and any comments on the possible need for further QE, will maintain sterling’s position as the laggard in G10. A combination of further dovish commentary and a “yes” vote from the Greek parliament this week should soon push EURGBP above the crucial 0.90 resistance.
Swiss consumption indicator released this morning rose to its second highest reading since the credit crisis. The Swiss economy is proving to be the most productive in the industrial world. Corporate profits are booming (this week’s KoF index should be at a 5-yr high), exports are booming to Asia, and domestic households are benefiting from a sudden personal wealth boost from a soaring Swiss Franc. Importantly the latest IMM positioning data supports the view that EURCHF should fall further (regardless of the outturn of the Greece votes this week) as investors have been trimming their CHF positions during June and current positioning in CHF is far from a level that can be considered over crowded. We expect EURCHF is continue to move lower towards 1.15 (see our long help EURCHF put spread trade idea).
While the market continues to await the Greek votes today’s data should have a lower-than-normal impact on the market. Sweden retails sales, Italian business confidence and US consumer confidence and another manufacturing survey are the key data releases. Overnight Japanese retails sales were released stronger-than-expected (2.4% m-o-m vs. 1.2% expected) bringing the level of retails sales close to pre-earthquake levels confirming a v-shaped recovery for the Japanese consumer. German Gfk consumer confidence survey released this morning beat expectations and has broken its previous downward trend since March.
Societe Generale
Research & Analytics