Mid-Day Report: Euro Soft in Quiet Markets as Greece Preparing for Negotiation

Euro is mildly softer in quite markets today. Trading activities are subdued ahead of July 4 holiday in US. Nonetheless, Euro pared some EU summit triggered gains against dollar and yen as Greece is starting to prepare for austerity re-negotiation. A spokesman from the new Greek government, Kedikoglou, said that they’re going to present “astounding” information to troika on Wednesday, which are “alarming in terms of the recession and unemployment”. He said that it’s “beyond any doubt” that the current policy brings the “opposite results”. Socialist leader Venizelos said that Greece “cannot remain indifferent to this deep recessions…. unemployment rate that exceeds 22% and 55% among young people. Venizelos urged that “extension of the economic adjustment program is the cornerstone of the country’s strategy and of the basis of the coalition government’s cooperation”.

However, a clear message was already sent from ECB Asmussen on Monday on extending the austerity program. To recap, Asmussen said strongly that Greece’s new government “lose precious time looking to avoid or loosen the program,” and should not “stretch pain”. And Asmussen warned Greece should avoid unrealistic and unacceptable alternatives, but stick to the current bailout agreements. And in addition, we’ll have to wait to see the terms for Spain’s EUR 100b banking sector bailout, which will be announced at an EcoFin meeting on July 7. Regarding the agreement to use ESM to buy bonds through the secondary markets, Finland continues to express it’s strong opposition. But Spanish economy minister de Guindos said that Finland and Holland won’t be able to block as the decisions in ESM are to be taken with a “qualified majority” but “not unanimously”. So, the drama in Eurozone will continue and we’ll keep an eye on how the development goes.

Ahead of the ECB meeting on Thursday, speculations that the central bank would announce a rate cut intensified as recent data showed that the economy 17-nation bloc remained under pressure. Besides the main refinancing rate, the ECB might also adjust the lending rate and the deposit rate, standing at 1.75% and 0.25% respectively. Should the central bank lowers the deposit rate, banks would probably encouraged to lend money to each other rather than just keeping the money at the ECB.

The RBA expectedly left the cash rate unchanged at 3.5% in June, following two consecutive cuts totaling 75 bps in May and June. Governor Glenn Stevens saw growth in the country during the inter-meeting period and anticipated inflation to be inline with the target. Notwithstanding uncertainty and potential downside risks in the global economy, the central bank believed the monetary stance is appropriate. In our opinion, the meeting statement indicated no bias on future policy rate outlook. More in RBA Paused After Two Consecutive Months Of Rate Cuts.

On the data front, Japan monetary base rose 5.9% yoy in June. China non-manufacturing PMI rose to 56.7 in June. Australia building approvals jumped sharply by 27.3% mom in May. UK PMI construction was poor and dropped to 48.2 in June. Mortgage approval dipped slightly to 51k in May while M4 money supply dropped -0.1% mom. Eurozone PPI slowed more than expected to 2.3% yoy in May.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2537; (P) 1.2607 (R1) 1.2646; More…..

Intraday bias in EUR/USD remains neutral for the moment. But consolidations should be brief and the corrective rise from 1.2287 is expected to resume sooner rather than later. Above 1.2747 will target 100% projection of 1.2287 to 1.2747 from 1.2406 at 1.2866 next. Though, we’d expect strong resistance from 61.8% retracement of 1.3282 to 1.2287 at 1.2902 to limit upside. After all, fall from 1.4939 is still expected to continue for another low below 1.2287. But break of 1.2406 is needed to signal completion of the current consolidation first.

In the bigger picture, fall from 1.4939 is treated as a falling leg inside the consolidation pattern that started at 1.6039 (2008 high) and could extend to 1.1875 low and below. In that case, though, strong support is expected from 1.1639/1875 support zone to contain downside and bring rebound. After all, such consolidation would extend further inside range of 1.1639/6039 for some more time. On the upside, break of 1.3486 resistance is needed to indicate completion of fall from 1.4939. Otherwise, outlook will stay bearish even in case of strong rebound.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY Monetary Base Y/Y Jun 5.90% 3.60% 2.40%  
1:00 CNY Non-manufacturing PMI Jun 56.7   55.2  
1:30 AUD Building Approvals M/M May 27.30% 5.00% -8.70% -7.60%
4:30 AUD RBA Rate Decision 3.50% 3.50% 3.50%  
8:30 GBP PMI Construction Jun 48.2 52.9 54.4  
8:30 GBP Mortgage Approvals May 51K 50.0K 51.8K  
8:30 GBP M4 Money Supply M/M May -0.10% 1.40% 1.10%  
9:00 EUR Eurozone PPI M/M May -0.50% -0.30% 0.00%  
9:00 EUR Eurozone PPI Y/Y May 2.30% 2.50% 2.60%  
14:00 USD Factory Orders May   0.10% -0.60%

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