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Daily Report: Euro Extends Rally, Germany to Discuss French Greek Debt Proposal

June 30th, 2011 | Add a Comment

Euro extends its broad based rally against major currencies today on optimism that Greece’s problem is solved in near term after yesterday’s parliamentary passage of austerity plan. The near term resolution in the Greece situation also helps boost risk appetite in general and sends Asian equities broadly higher following another day of rebound in DOW overnight. Dollar is defensive against all major currencies for the moment as focus is back to the fragility of US recovery as well as IMF’s warning to US for raising the debt ceiling Strength in crude oil, which is now back above 95 level after drawing support from 90, also gives some pressure to the greenback.

To recap, Greek parliament approved the austerity package of 78B euro, with 155 out of 300 lawmakers voting in favor of it. The parliament will vote again on bill details later on an article-by-article basis today. It’s likely to be a matter of formality only. And, that should clear the path for EU and IMF to release the EUR 12b tranche of the EUR 110 bailout package to Greece in July and avoid an immediate default.

The passage of the austerity plan also helped clear an important hurdle for getting second bailout from EU/IMF. German banks and insurers are meeting today with the Finance Ministry to discuss the private-sector involvement in Greece’s second bailout. The French proposal is the basis for discussion. Under that proposal, banks would reinvest 70% of process with Greek bonds fall due in 2011-14. 50% of that would go into new 30 year bonds and 20% will go into zero-coupon AAA bonds with deferred interest. It’s believed that German banks have agreed in principle even though volume of rollover and the coupon payments of new bonds need to be finalized.

IMF warned the US to raise the debt ceiling or it would risk causing a ‘severe shock’ the world economy. At the annual report on US economy, the world lender said ‘the federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets… These risks would have significant global repercussions, given the central role of US Treasury bonds in world financial markets’. SP said that it will downgrade US Treasury bills to D rating if the government misses a payment of $30B on August 4, when the bills mature. Indeed, Fitch Rating and Moody’s said earlier this month they would downgrade the country’s rating should the raise of debt ceiling fail.

On the data front, New Zealand building permits rose 2.2% mom in May, NBNZ business confidence rose to 46.5 in June. UK Gfk consumer sentiments deteriorated to -25 in June. Japan manufacturing PMI dropped to 50.7 in June. German unemployment and Eurozone M3 will be released in European session but main focus will be on Eurozone CPI flash, which is expected to rise to 2.8% yoy in June. From US initial jobless claims and Chicago PMI will be released. Canadian GDP will also be featured and would give Canadian dollar another boost if GDP could avoid contraction in May.

Dollar index’s sharp fall and break of 74.49 support indicates that rebound from 73.35 is finished. Note again that dollar index is still held by medium term falling trend line from 88.70 and thus, the down trend is still valid. Deeper fall should now be seen to 73.5 support in near term. Break there will be first indication of down trend resumption through 72.69 to 70.70 historical low. On the upside, again, we won’t turn bullish until a break of 76.36 resistance even in case of strong rebound.

Daily Pivots: (S1) 1.4357; (P) 1.4403 (R1) 1.4479; More.

EUR/USD rises further to as high as 1.4521 so far today and is set to take on near term falling trend line resistance. Intraday bias remains on the upside and break of the trend line will send EUR/USD to 1.4965 resistance next. Note again that EUR/USD is possibly forming a triangle pattern inside converging range of 1.3969/4939. Eventual upside breakup is still in favor with 1.3969 support intact. Break of 1.4695 resistance will be the first signal of up trend resumption for another high above 1.4939. On the downside, below 1.4330 minor support will turn bias neutral. Further break of 1.4102 will turn focus back to 1.3969 support instead.

In the bigger picture, EUR/USD is still trading above medium term trend line support from 1.1875 (now at 1.3606) and thus, rise from there should still be in progress. We’d continue to favor the bullish case that correction from 1.6039 has completed with three waves down to 1.1875 already and. Above 1.4938 will target 1.5143 resistance first. Break will affirm the bullish case of long term up trend resumption for another high above 1.6039. However, sustained trading below the mentioned trend line support will indicate that there should at least be one more medium term decline, possibly for below 1.1875, before correction from 1.6039 completes.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:45
NZD
Building Permits M/M May
2.20%
3.20%
-1.60%
-1.20%
23:01
GBP
GfK Consumer Sentiments Jun
-25
-24
-21