greece negotiations and tier one us data key for traders this week

Weekly Outlook

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1st June 2015 by Richard Perry, Market Analyst

Macro Commentary

Negotiations between Greece and its creditors (the IMF and the EU) continue, but as yet there is no deal. Greek claims

that a deal was close were swiftly rebuffed by the IMF, leaving Greece still without the final €7.2bn bailout tranche it

needs to pay €1.6bn of debt repayments owed to the IMF in June. However, it would appear a 5th June deadline (for a

€300m repayment) is not actually a deadline at all. There is an IMF technicality that allows a lumping together of all

payments, to then be paid at the end of the month. According to Bloomberg, there is a precedent for this with Zambia in

the 1980s. If this is the case then without the absolute urgency of Friday’s deadline, this whole process could rumble on

past this week too. Quite how financial markets would react if a Friday deadline is extended remains to be seen, but it

certainly would not be beneficial to risk sentiment. Apparently progress is being made with VAT and property taxation

reform. However, what Greece really needs is pension reform, with around 28% of the government budget spent on

pensions (OECD average is 18%, with UK spending 12% in comparison). Although the retirement age was increased to 67

in 2012, numerous exemptions means that 68% of public workers retire between 51 to 61. This clearly needs to change.

WHEN: Fri, 5th June, 1330BST

LAST: 223,000

FORECAST: 225,000

Impact: After Janet Yellen’s reiterated that the Fed

is focusing on labor market improvements for a

decision over a potential rate hike, it is important

for payrolls to remain firmly above the 200,000

threshold. The Fed will also looking for average

hourly earnings picking up after a surprise uptick

in core CPI. Consensus almost perpetually expects

0.2% month on month growth, with year on year

of c. 2.0% but this is not enthusing FOMC hawks.

Payrolls invariably drive market volatility but a

strong number would certainly be strong for US

dollar whilst negatively hitting commodities and

maybe also an equities “good news is bad” run.

Must watch for: US Consumer Confidence

Key Economic Releases

Date Time Country Indicator Consensus Last

Mon 1st Jun 15:00 US ISM Manufacturing PMI 52.0 51.5

Tue 2nd Jun 05:30 Australia RBA monetary policy 2.00% 2.00%

Tue 2nd Jun 15:00 US Factory Orders 0.0% +2.1%

Wed 3rd Jun 09:30 UK Services PMI 59.2 59.5

Wed 3rd Jun ALL OPEC Bi-annual meeting

Wed 3rd Jun 12:45 Eurozone ECB monetary policy + press conference 0.05% 0.05%

Wed 3rd Jun 15:00 US ISM Non-Manufacturing PMI 57.0 57.8

Thu 4th Jun 12:00 UK Bank of England monetary policy +0.2% +0.6%

Fri 5th Jun 13:30 US Non-farm Payrolls 225,000 223,000

Fri 5th Jun 13:30 US Average hourly earnings +0.2% +0.1%

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US Non-farm Payrolls

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

Weekly Outlook 1st June 2015

by Richard Perry, Market Analyst

Foreign Exchange

With a raft of tier one US economic data this week, expect volatility on dollar trades to be elevated. Rhetoric from

Federal Reserve members continue to push the idea that there is a data dependency to any rate hikes, which is adding to

volatility surrounding US economic data. Monday’s ISM Manufacturing is expected to show a first uptick since October

and this could be a driver of dollar fortunes through the early part of the week. Clearly the focus will be on Friday’s

Payrolls data, which need to remain positive, with the labor market data really being the major source of positivity that

the bulls have been able to rely on. Another interesting aspect this week will be the ECB monetary policy which will be

unchanged on the headline data, but in Mario Draghi’s press conference he is likely to be grilled on the ECB’s idea of

front-loading QE purchases of the next couple of months to account for the reduced liquidity during the summer. Exactly

how many more bonds than the stated target of €60bn per month will be key and also the progress on meeting the

targets will drive euro volatility. Markets will also be focused on the prospects of a deal for Greece too.

WATCH FOR: A week of elevated volatility with dollar traders sifting through a multitude of key US data

such as ISM manufacturing and non-manufacturing, and labor market data culminating in Non-farm

Payrolls on Friday. Also a series of major central bank policy updates for Australia, the Eurozone and UK.

EUR/USD

Watch for: Resistance at $1.1065 is a key

pivot level this week

Outlook: In 2015 there have been numerous

reversals (both bullish and bearish) which

have traded around a 50 pip band between

1.1050/$1.1100. The euro recently broke

below a key near term support at $1.1065

which now becomes resistance for any rally

this week. Whilst trading below this pivot,

the near to medium term outlook remains

bearish (with the long term outlook negative

whilst below $1.1450). I still see technical

rallies will be an opportunity for medium

term short positions.

GBP/USD

Watch for: Developing bearish medium term

phase suggests rallies are a chance to sell

Outlook: Breaking below the key reaction

low at $1.5445 last week confirmed that the

bears are now forming a new sequence of

lower highs and lower lows. With

momentum indicators adding to the bearish

confirmation, any rallies should be seen as a

chance to sell. A text book lower high would

come in the range between $1.5445 and

$1.5490 (an old May peak). A 50% Fibonacci

retracement of the April/May rally is at

$1.5189 and could be a potential

consolidation zone this week, however, the

key support is at the May low of $1.5088.


FX Outlook

2



Indices

A marked increase in options volatility on the DAX has had a negative impact and a feature of trading in the pas couple of

weeks. There has been an increasing concern over the lack of progress in negotiations of a deal for Greece which has

been a significant driver of the uncertainty. The negative correlation between the yields on German Bunds and the

fluctuations on the DAX has switched for the time being and this could continue this week, as the Greek negotiations

rumble on. However, I do anticipate a traditional last minute deal being reached once more and I would expect the DAX

to be sharply higher on the news. Even the S&P 500 appears to be driving off Greece at the moment, however it is

interesting that the Dow Transports index continues to fall away and this could also be a factor. The absence of any

significant corporate earnings will also keep the sentiment driven by US data and international drivers this week. The

FTSE 100 has traded in a tight 140 tick range for the past two weeks and has become a apparent safe port in the storm

that is impacting across Eurozone equity markets.

WATCH FOR: Eurozone equity markets (especially the DAX) are still being dragged around by newsflow on

Greek negotiations. A raft of tier 1 economic data will also impact across the S&P 500, with special focus on

the IMS data and Non-farm Payrolls.

DAX Xetra

Watch for: With focus on the lack of a deal

for Greece selling pressure could test 11,167

Outlook: There is a slightly bearish bias

amidst the volatility now as sharp selling

pressure at the end of last week has

breached the key near term pivot band of

support between 11,620/11,710 (which now

turns into resistance for a rally). If this

continues then pressure will mount on the

key May low at 11,167 this week. There is a

sense that momentum is negative and this is

adding to the pressure, but as yet there is no

suggestion of a downside break below the

May low.

FTSE 100

Watch for: A breach of 6930 opens 6885 and

then the key May low at 6810

Outlook: A late sell-off into the close on

Friday may have been due to end of month

closing the books, however the move

completed a bearish outside day which

suggests that support at 6930 could now

come under pressure. There is no significant

selling pressure on FTSE 100 yet, but a

failure at 6930 would open further support

levels in May whilst the bulls would certainly

not be happy if the 6810 low was breached

as it would ruin a sequence of higher lows

through 2015. Resistance is now at 7070.


INDEX Outlook

3



Other Assets: Commodities & Bonds

Recent dollar strength has adversely impacted on prices across the commodities complex as the negative correlation

continues. Friday’s US GDP data strengthened the dollar but there are still a few signs of a near term loss of impetus,

which could be supportive of commodities prices. If oil traders are keeping one eye on the dollar, they will certainly be

keeping the other on this week’s bi-annual OPEC meeting. Already the Saudis are suggesting that production would keep

up with demand (suggesting no imminent cuts to supply), and whilst there is no expectation of any major changes in

policy, volatility surrounding the meeting could be elevated.

Bond yields on Treasuries and Bunds have spent the past couple of weeks retracing their upsurges, with the positive

correlation between the euro and Bund losing strength. This is coming from the focus on Greece once more, and whilst

this remains unresolved the safe haven Bund will benefit. Greek yields have fallen on the rumour of a deal but the longer

the situation drags there may be further excuse for yields to rise again.

WATCH FOR: Focus remains on crucial tier one US data driving expectation of a US rate high and a negative

correlation with commodities. The OPEC meeting will drive oil. Eurozone yields will move off Greece.

Gold

Watch for: The range play continues

between $1178/$1225

Outlook: Despite the dollar strength, a

series of neutral candles at the end of last

week shows the support for gold around

the bottom of the range (which is still

around $1178), whilst also suggesting a

lack of sellers willing to push gold too far

lower near term. Technical indicators are

neutral and playing the extremes of the

range is once more an option. Traders

appear to be looking for the next catalyst

for a breakout.

German 10 year Bund yield

Watch for: Key support at 0.520% breached

to open further downside pressure

Outlook: Although the decline has not been

as fast as the sharp rally of late April, the

retracement is now in full swing. Last Friday

there was a decline back through the 38.2%

Fibonacci retracement at 0.511% which had

held up the original correction of early May.

Now having closed below the latest key

reaction low of 0.520% the outlook for the

Bund yield is deteriorating. Momentum is

corrective, with the RSI now in decline and

the Stochastics in bearish configuration. The

next Fib levels are the 50% retracement at

0.423% and then the 61.8% retracement at

0.335%. Initial resistance is now 0.555%.


COMMODITIES & BONDS Outlook

4

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Weekly Outlook 1st June2015


greece negotiations and tier one us data key for traders this week

Economy & Finance