greece and us data in focus in a volatile week

Weekly Outlook

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29th June 2015 by Richard Perry, Market Analyst

Macro Commentary

The prospect of a “Grexit” and the timing of the US Federal Reserve rate hike are in focus this week. This week we could

be a lot further down the road for knowing the outcome of both market drivers. Over the weekend, talks between

Greece and its creditors broke down and Greece is now a referendum away from setting in motion a chain of events that

would not only likely result in not only an exit from the Eurozone, but also potentially the EU too. A lack of agreement

means no final €7.2bn tranche of bailout money, meaning a default on the IMF debt (unless the IMF grants another

payment extension). The volatility driven by this has been significant and can be expected to continue until the

referendum on Sunday which will ask the Greek people whether they want to accept the creditors’ terms. Safe haven

flows, and the movement on Eurozone sovereign yield spreads will indicate the market’s outlook. We also look at key US

data this week. The Fed remains massively data dependent and with FOMC members in ever more hawkish rhetoric

(centrist Jerome Powell the latest last week), with a swathe of key data, the improving trends of last month could be

confirmed. Forward looking ISM Manufacturing PMI, Non-farm Payrolls and average earnings are key focus.

WHEN: Thu, 2nd July, 1330BST

LAST: +280,000

FORECAST: +232,000

Impact: The next two months of payrolls data

could be a crucial element in the decision making

process of the Fed as to when it should start hiking

rates. The FOMC needs to see a positive trend in

economic data and a continuation of the strong

showing of last month’s 280,000 would be an

excellent start. Furthermore average hourly

earnings have finally started to pick up too, and a

solid 0.2% month on month growth would also be

a positive sign. Expect strong volatility for the

dollar, whilst the prospect of positive data being

not so positive for US equities is still there. Gold

will have its usual negative correlation.

Must watch for: US Non-farm Payrolls

Key Economic Releases

Date Time Country Indicator Consensus Last

Tue 30th Jun 10:00 Eurozone Flash CPI +0.2% +0.3%

Tue 30th Jun 15:00 US Consumer Confidence 97.3 95.4

Wed 1st Jul 02:00 China Manufacturing PMI 50.3 50.2

Wed 1st Jul 09:30 UK Manufacturing PMI 52.5 52.0

Wed 1st Jul 13:15 US ADP Employment +218,000 +200,000

Wed 1st Jul 15:00 US ISM Manufacturing PMI 53.2 52.8

Thu 2nd Jul 13:30 US Non-farm Payrolls +232,000 +280,000

Thu 2nd Jul 13:30 US Average Hourly Earnings (MoM) +0.2% +0.3%

Thu 2nd Jul 15:00 US Factory Orders (MoM) -0.5% -0.4%

Fri 3rd Jul 09:30 UK Services PMI 57.3 56.5

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US Non-farm Payrolls

N.B. Please note all times are BST (GMT+1), data source Reuters

Weekly Outlook 29th June 2015

by Richard Perry, Market Analyst

Foreign Exchange

With talks between Greece and its creditors breaking down, volatility for the euro has spiked. The reaction will be

interesting this week around the key pivot level at $1.1050. However, this is not the only factor impacting across forex

this week and after recent consolidation also now the focus will turn far more back towards the primary question that

will dominate the second half of 2015: when will the Fed hike rates? The batch of key tier one US economic data could

give us far more of an idea this week, with traders looking for signs of positive trends developing in crucial data points

such as the ISM Manufacturing, Non-farm Payrolls and average hourly earnings which all ticked positively last month. I

expect there to be far more direction to be gleamed from the forex majors in the next few days and this will bring an end

to the ranging phase that so many pairs have been in. The euro is sure to take the major focus, and a strong of positive

US data could add to pressure back on the key pivot band around $1.1050. However, also look out for Dollar/Yen also

finding support around 122 and the Aussie adding to pressure on the key floor at $0.7560. The reaction on Cable could be

telling too as the strong performance of sterling will be seriously tested.

WATCH FOR: The fallout from the Greek negotiations will dominate the early part of the week until crucial

US data takes the focus on Wednesday (ISM) and Thursday (Non-farms/average earnings/factory orders).

EUR/USD

Watch for: The pivot level around $1.1050

will be key this week

Outlook: The consolidation on the euro has

been blown out of the water by the

breakdown in the Greek negotiations. The

key pivot level at $1.1050 is now under

serious threat. A breakdown opens the key

May low at $1.0818. With the Greece issue

in addition to a batch of key US data, the

volatility is finally driving some decisive

direction this week. The technicals are

turning negative but the newsflow and

fundamentals will continue to be the major

drivers this week.

GBP/USD

Watch for: Closing below $1.5666 continues

the corrective move back towards $1.5450

Outlook: Cable has been one of the best

performing major currencies against the

dollar in the past few months and it will be

very interesting to see the reaction if the US

data starts to come through positively this

week. The positive technicals could then

come under pressure from a strengthening

dollar. The technical correction on sterling

has yet to play out and there is still room to

retreat back towards $1.5450 and still

maintain a strong positive configuration. This

could be the week for a dip to buy into

again. I continue to expect choppy medium

to longer term trading on Cable.


FX Outlook

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Indices

Over the weekend the breakdown in talks between Greece and its creditors and the decision by Greek Prime Minister

Tsipras to hold a referendum has driven investors out of the relative high risk asset class of equities. The initial sharp

breakdown in the German DAX and French CAC is being retraced intraday on Monday but it will be interesting to see if

investors view this as an opportunity to buy, or if this rebound is a dead-cat bounce that will be sold into amidst the

ongoing uncertainty. Technicals almost go out the window in times like these as the huge volatility on the DAX spikes

higher again. The CAC has also sold off enormously but it is interesting that the FTSE 100 is the only index of the three

that has broken below its key June low. This could have longer term implications for the FTSE 100, depending upon how

the marekt settles down through this week. However, investors have got other drivers of sentiment too amid a clutch of

US key data. The clamour for a Fed rate hike will increasingly be calling for September if key US data is positive this week

and exactly how this impacts on US equities will be interesting. Previously, good news has been taken badly because of

the perception of ushering in the end of accommodative monetary policy. Ultimately though the Fed will look to raise

rates when the US economy is firm enough to cope and that should be a bullish.

WATCH FOR: Reaction to the 30th June deadline for the Greek repayment will be the driver of sentiment

early in the week but then taken over by key US economic data.

DAX Xetra

Watch for: The extended volatility will

continue through this week

Outlook: Volatility has been remarkable in

recent weeks and it’s not over yet. Greece is

surely now going to default (in some fashion

or other) on Tuesday and this could make

for significant bear pressure on the DAX. A

key high has now been left at 11,653 and

selling into any intraday rallies is likely to be

seen. This could result in a further retest of

the 10,800 support of the key June low and

a key 38.2% Fibonacci retracement level.

Momentum indicators are now negative.

FTSE 100

Watch for: FTSE 100 to continue to trade

with lower volatility than DAX

Outlook: If you are looking for a high octane

play, trade DAX, if it is more of a sedate day

to day mover, look at the FSTE 100, which

continues to trade with much lower

volatility than the Eurozone bourses. The

FTSE rally in the past week failed around

6870 and this is now a key near term

resistance in place. With selling pressure

back on again a close below 6625 could have

significant implications for further declines.

The intraday low from Monday at 6599 is

also important.


INDEX Outlook

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Other Assets: Commodities & Bonds

Safe haven flows have improved with the breakdown of the talks between Greece and its creditors. This has helped to

support precious metals. However that aside, this week we are bombarded by a barrage of US key tier one economic

releases which could heighten calls for a Fed rate hike. The negative correlation between gold and the US dollar (and

therefore positive economic data) will be back in play with the biggest volatility reserves for Thursday and payrolls. I am

not sure the same can be said for the oil price where the drift continues on WTI (sideways) and Brent Crude (very slightly

lower).

German bund yields volatility has ramped up significantly as the Greek crisis has worsened. The 10 year Bund yield has

spiked to a four week low and a close below 0.727% would be a significant statement of intent. Peripheral Eurozone debt

yields are moving in the opposite direction as the concern over contagion has been ramped up. With the US 10 year

Treasury yield is also sharply lower but US data will be a crucial driver of this week on the perception of Fed policy action.

WATCH FOR: If Greece can pay its IMF debt due on 30th June then sovereign yields will continue to push

higher, whilst precious metals will be hit but also need to be concerned with strong US economic data too

Gold

Watch for: Continued pressure on

support around $1175

Outlook: Depending on the flow into safe

havens on the Greek crisis, the dollar

strength should drive further pressure on

gold which has spent the past week

testing the old support band c. $1175.

This has re-opened the key near to

medium term low around $1162. The

momentum indicators still suggest a range

trade with more needing to be done to

suggest the bears are in control. A closing

price below $1170 would help, but the

choppy market suggests that any move is

still likely to be messy.

German 10 year Bund yield

Watch for: Pressure on 1.059% if Greek

negotiations are resolved positively

Outlook: A push on the Bund yield back

towards the June peak is on hold as safe

haven flows have spiked the yield lower and

have broken a technical uptrend. A close

below 0.727% would signal a bearish

reversal pattern and open for further

correction. The volatility is high though with

the Greek situation still playing out.

Momentum indicators over the medium

term are still fairly positive for now, but

continues downside pressure could see this

outlook change.


COMMODITIES & BONDS Outlook

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Weekly Outlook 29th June2015


greece and us data in focus in a volatile week

Economy & Finance