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Germany Votes

Bundestag the Last Impediment to Renewed Bailout Negotiations

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German lawmakers are set to vote today on measures that would provide a path for new negotiations on a third bailout package for Greece ahead of Monday’s very large Greek repayment due to the ECB. Growing opposition to the idea has the potential to unravel all of the week’s progress as the looming prospect of Greek default seems unintimidating to certain opponents.

ECB Calls for Debt Relief

Echoing the chorus of calls from the International Monetary Fund and other external analysts, the European Central Bank yesterday also highlighted the necessity for Greek debt relief, with ECB President Mario Draghi hammering home this point during his press conference yesterday. The Germans nevertheless remain in staunch opposition to any such move, with German Finance Minister Wolfgang Schaeuble decrying to measures as not allowed by European rules that prevent haircuts to the face value of sovereign debt. Support for Greek banks was also expanded by an additional EUR 900 million with the country’s banks set to reopen on Monday. In additional news, the European Central Bank moved to leave the benchmark interest rates for the Euro Area on hold at 0.05% while leaving other easing policies unchanged for the moment. Confidence in the region continues to ebb as evidenced by the continued losses in the Euro while stocks are bid on the deal prospects.

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Fed Not Paying Attention to Stocks

In her second day of semiannual congressional testimony yesterday, Federal Reserve Chairwoman Janet Yellen remarked that the Central Bank is not too concerned by movements in the stock market, highlighting that the institution sticks by its congressional mandate to target full-time employment and inflation. Yellen underlined earlier comments that she plans to raise interest rates in a “prudent and gradual manner” after stressing the importance of not waiting too long to raise interest rates and not tightening monetary policy too quickly, which could add to shocks in financial markets. However, one key point that arose was the fact that Yellen and the Federal Reserve will not wait for inflation to reach the 2% before contemplating higher interest rates. Although not confirmed that the Fed will see rate liftoff in September, comments remain supportive of multiple hikes before the end of 2015. The Nasdaq led equities higher yesterday, climbing 1.26% during the cash equity session.

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Oil Tumbles

The first offshore crude tanker steaming out of Iranian ports is adding to concerns of another rout in oil prices following reports that the Cushing storage facilities are once again seeing inventory builds akin to what was seen in the spring months. Although the latest Iranian deal does not necessarily enable Iran to add to production at the moment due to diminished capabilities following years of infrastructure neglect, excess production waiting in floating tankers can begin shipping. With hedges in the American oil industry expiring and high cost producers gradually being forced to cut activities in the oil patch, there might be more casualties from the latest nuclear accord. West Texas Intermediate prices are once again ebbing near multi-month lows, keen to retest key support while the spread to Brent closes modestly after widening past $6 points. Natural gas prices remain elevated despite the supply glut facing the energy product.

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EURGBP Equidistant Channel Technical Pattern

Comments earlier in the week from Bank of England Governor Mark Carney coupled with the ECB’s continuation of loose monetary policies have seen the EURGBP pair continue to trend lower over the last week. Optimism that the BoE will move to tighten monetary policy sooner rather than later has sent the Pound soaring versus peers while the lack of resolution in Greece continues to sap confidence from the Euro. With votes still needed in key European jurisdictions, Monday’s Greek repayment is once again coming down to the wire. The equidistant channel pattern forming in the EURGBP has a strongly bearish bias with ideal positions initiated near the upper channel line targeting the lower channel line. Fighting the prevailing trend is not suggested due to the worsening risk-reward attributes.

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