Intraday Market Thoughts

Decision on Next Tranche of Greek Aid in Early July; Sovereign AUD Support

by Patrik Urban
Jun 20, 2011 13:35

During the Asian session, the greenback was able to recover a portion of its losses from Friday. London sees only a slight change in prices with the USD trading off its highs. Greek CDS continue to rise despite latest efforts. AUD could see support on Russian central bank diversification.

News from the EZ from this morning included German PPI for May that came out unchanged and reached 6.1% y/y and EZ Current Account deficit for April that widened to EUR 5.1B from previous EUR 3B.

The Greek debt saga continues as the decision on the next tranche of the aid will be contingent on Greece meeting all reform plans and austerity measures. Early July will bring voting whether the next tranche will be released. Markets do not seem to be too impressed with the latest developments as the Greek 5 year credit default swap continues to rise and is up 128 bps today.

AUD could be supported in the short term by the news that the Russian central bank will diversify about five billion of its USD reserves into the AUD. The support could be only psychological as this round of diversification should be completed over three to six months.

As there are no economic data releases due throughout the New York session today, we can expect that trading will be largely determined by three factors:

1. New developments in EZ debt crisis

2. Awaiting Wednesdays FOMC statement

3. Technicals

1. Announcement between French and German leaders last week that an agreement on financial aid for Greece has been reached sent EURUSD almost 300 points higher. If no new disturbing developments occur, euro should be underpinned in near term with a slight upside bias.

2. FOMC starts a meeting on Tuesday June 21st that will culminate on Wednesday by a statement that will shed light not only on the end of QE2 but also on the possibility of QE3 in any form. Investors will look for an assessment of the current situation and answers if the recent worsening of economic data is only temporary set back in underlying recovery or a beginning of another recession.

3. Technicals that traders should pay attention to:

GBPUSD 6210-6220 zone: resistance given by previous lows and matching 38.2% fib. ret. at 6216

NZDUSD 8110-8120 zone: strong resistance given by high from beginning of May and multiple lows throughout June. 61.2% fib. ret at 8120.

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