markets coming to terms with greek deal this week

Weekly Outlook

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13th July 2015 by Richard Perry, Market Analyst

Macro Commentary

That noise you can hear is the sound of a collective sigh of relief. But maybe it’s as much one of relief for the avoidance of

a Grexit, as it is relief that the whole sorry episode is coming to an end. The whole lot of them should hang their heads in

shame. No-one has come out well from this. The IMF finally is only now suggesting that Greece needs a debt restructure

otherwise it will be just like Groundhog Day again further down the line. The Eurozone has had a complete lack of

empathy for a country that is already experiencing crippling austerity, with youth unemployment at 60% and almost zero

prospect of being able to grow itself out of its economic chasm. Greece tried to meet fire with fire, but what was the

point in holding a referendum on whether to accept the creditors’ measures, only to agree less than a week later to a

deal that is even more stringent? Greece clearly needs significant structural reforms to its economy, but the ECB’s Draghi

says as much about the Eurozone economies almost every press conference. Through how this situation has played out

apparently Greece has lost around €4bn of tax revenue which will mean even more austerity. President Hollande had the

gall to say “it was a positive night for Europe”, I very much disagree. This has certainly not been Europe’s finest moment.

WHEN: Wed, 15th July, 1900BST

LAST: n/a

FORECAST: n/a

Impact: In the second half of 2015 anything that

Janet Yellen says will be pounced upon by the

market as a pointer towards when the Fed may

time its first rate hike. The two day Congressional

testimony gives the financial committee Senators

and Representatives the chance to grill Yellen. This

tends to be an event that moves markets and

traders of the US dollar and Treasuries will be

watching closely. Watch for comments on the

international events (Greece and China) being

dovish, whilst focus on the “transitory” Q1

weakness now being behind us and looking

forward to better growth being hawkish.

Must watch for: Janet Yellen’s Congressional testimony

Key Economic Releases

Date Time Country Indicator Consensus Last

Tue 14th Jul 09:30 UK CPI 0.0% +0.1%

Tue 14th Jul 10:00 Eurozone German ZEW Economic Sentiment 30.0 31.5

Tue 14th Jul 13:30 US Retail Sales (MoM ex autos) +0.5% +1.0%

Wed 15th Jul n/a Japan BoJ Monetary Policy

Wed 15th Jul 09:30 UK Unemployment (Average Weekly Earnings) 5.5% (+2.9%) 5.5% (+2.7%)

Wed 15th Jul 14:15 US Industrial Production (MoM) +0.2% -0.2%

Wed 15th Jul 15:00 US Janet Yellen’s Congressional testimony n/a n/a

Thu 16th Jul 12:45 Eurozone ECB monetary policy and press conference 0.05% 0.05%

Fri 17th Jul 13:30 US CPI +0.1% 0.0%

Fri 17th Jul 15:00 US University of Michigan Consumer Sentiment 96.4 94.6

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US 10 year Treasury yield

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

Weekly Outlook 13th July 2015

by Richard Perry, Market Analyst

Foreign Exchange

Reaction to the agreement between the Eurozone and Greece has been mixed. After initial uncertainty over the

weekend, in the wake of the deal, the euro has come under pressure once more. Furthermore, the risk improvement

seen in other markets (equities mainly and Eurozone sovereign bonds to a slightly lesser extent) has not really played out

in forex markets. Maybe this is a concern over the conditionality of the deal still in place, but the US dollar has

strengthened again. Perhaps it is something to do with the speech that Janet Yellen gave on Friday where she re-iterated

the potential for a rate hike in 2015. Amongst the forex majors, the Kiwi remains the runt of the litter at the moment at

least. The selling pressure may not be too bad today, but the underperformance of the Kiwi on Friday was rather telling.

The technicals remain weak, whilst the RBNZ talking the Kiwi lower is certainly adding to the pressure.

WATCH FOR: A batch of key US data will put focus squarely back on the US dollar. Retail Sales, Industrial

Production and CPI will be key for the dollar, but add in Janet Yellen’s testimony to Congress and the

volatility will remain elevated. Sterling traders will certainly focus on UK CPI on Tuesday, whilst euro

traders will want to know how the front-loading of the QE program is progressing at the ECB presser.

EUR/USD

Watch for: The market is still unsure how to

react to Greece agreement

Outlook: Even though the euro has drifted

lower in the past few weeks, the bears have

never really felt in control. The very positive

reaction on Friday has maintained

something of an uncertain medium outlook,

which has exacerbated. I would still view the

pivot at $1.1050 as a barometer for a

positive outlook and a more negative on for

the medium term. It is interesting that the

Stochastics have turned decisively higher as

they have in March, April and May, each

time a precursor to a strong run higher.

NZD/USD

Watch for: Downtrend channel continues to

suggest Kiwi remains a sell into strength

Outlook: Since turning lower at $0.7740 in

April, the Kiwi has formed an extremely well

defined downtrend channel. This is where

the technicals marry up to the fundamentals

(the RBNZ continues to talk the Kiwi lower

with threats of further rate cuts). The

technical momentum indicators remain

strongly negative and any rallies are very

short lived before the selling pressure kicks

in once more. The falling 21 day ma is an

idea sell zone currently. Another bearish

candle on Friday suggests the rallies remain

short lived and further downside within the

trend channel is likely this week.


FX Outlook

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Indices

Equity markets have been pulled from pillar to post during the Greece crisis, however (whisper it quietly) now we can all

start to put this behind us. The volatility has been enormous and there may be a period of settling down in the early part

of this week. However we can finally now turn attention back towards US data and also the nascent earnings season. The

big US banks release results this week and this will garner huge attention for Wall Street as the performance of a sector

that remains under pressure could be telling. With JPMorgan on Tuesday tending to be something of a barometer for the

sector we should get a sign very early on of performance. On Wednesday, Bank of America and Goldman Sachs report,

whilst on Thursday it is the turn of Citigroup. However the banks do not hold a monopoly this week with tech monster

Google also reporting. With the S&P 500 well off its all time highs and struggling to gain traction amidst the Greece

related volatility, earnings season has tended to be a traditional driver. With economic indicators having improved

through Q2 in the US this needs to show through on a corporate level. Try to look past the massaged earnings beats and

more for trends in the quarter on quarter figures for both earnings and (arguably more importantly) revenues.

WATCH FOR: As the volatility settles down, US banks earnings will be key for Wall Street. Don’t forget a

batch of key US data and also Janet Yellen’s testimony to Congress too.

DAX Xetra

Watch for: Resistance comes in for the rally

at 11,636

Outlook: The incredible volatility seen over

the past few weeks which has thrown the

DAX all over the place may finally begin to

subside now, however on a technical basis it

has left the bulls looking to gain control. The

Stochastics buy signal suggests potential

upside. The falling 55 hour moving average

c. 11,375 capped the previous rally however

has been breached but the big resistance

comes in at 11,636 the June rally high. The

bulls will hope that all these gaps left are

seen as breakaway gaps (ie. not filled).

FTSE 100

Watch for: A close above resistance at 6700

is key for the medium term

Outlook: With three huge bullish candles

potentially turning into four, the outlook is

on the brink of a big turnaround again.

There is a key test of the old key support

which is now resistance around 6700 which

needs to be broken on a closing basis.

Momentum still suggests choppy trading

and a need for continued improvement in

the RSI to prevent another rally just being

sold into. This could be a pivotal week for

FTSE 100 on a medium term outlook. The

bulls need to continue to react positively.


INDEX Outlook

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Other Assets: Commodities & Bonds

The downward pressure on commodities due to recent dollar strength has been exacerbated by the impact of the huge

sell-off on Chinese equities. Quite how these two factors move in the coming weeks could have a significant bearing on

commodity prices. With Greece off the critical list, the focus will quickly turn back towards whether the Fed will hike

rates this year or not, with us data and Janet Yellen’s testimony likely to cause elevated volatility on gold and silver. The

International Energy Agency put pressure on the oil price, noting slowing global oil demand and massive oversupply that

could induce further price decline. Also an agreement over lifting Iranian nuclear sanctions will also do the same.

The core/peripheral Eurozone bond yield spread dramatically narrowed in the wake of the Greeks finally submitting a

proposal that could be considered seriously by the EU leaders. And so with the agreement coming through over the

weekend, the threat of contagion has been averted (for the time being at least). Bonds considered as safe havens have

seen their yields shoot higher with UK, US and German bonds all being shunned for relatively riskier plays.

WATCH FOR: Focus on the US data again with Retail Sales, Industrial Production and CPI all key for dollar

strength which will impact on commodity prices again. Yellen’s testimony will also impact on Treasuries.

Gold

Watch for: Continued downside pressure

for a decline towards $1143 support

Outlook: A key breakdown below $1170

support of the old range has not been

reclaimed and the market seems to have

accepted the breakdown now. Looking at

the technicals suggests a strategy of using

the rallies as a chance to sell as the gold

price should be falling back to re-test the

key March low at $1143. It has been a

strange drift lower with a lack of really

decisive selling, however it is this that is

giving the chance to sell. Needs above

$1187 to turn the tide.

WTI Oil

Watch for: A closing break below $56.50

still targets $49.50

Outlook: The technical downside target

from the top pattern that completed below

the old support at $56.50 remains $49.50.

Despite the fact that the oil price has been

consolidating (a near term base pattern has

failed) in the past week, the deterioration in

the momentum indicators and the state of

the moving averages suggest that the

medium term bears are in the box seat now

for a push lower towards the downside

target. If there is a rebound (and a small

base pattern) as an oversold technical rally

takes hold, the overhead resistance in at

$56.50 would be an ideal sell-zone.


COMMODITIES & BONDS Outlook

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markets coming to terms with greek deal this week

Economy & Finance