Greece Given an Ultimatum

Daily Analysis - 26/06/2015

Euro Area Leaders Demand a Solution Before Markets Reopen Next Week

With creditors and Greece no closer to a bailout arrangement and debt deal, the negotiations are reaching a critical point with mere days left until a default. Without a deal in place and further accommodation from the European Central Bank, total economic collapse is expected.

Greece Deal Deadline Looming

Several differing comments out yesterday showed time is running out for Greece ahead of the June 30^th deadline for repaying the IMF and releasing bailout funds. Germany’s Angela Merkel is demanding an agreement before European markets reopen on Monday with Eurogroup President Dijsselbloem calling for an agreement by Saturday. They are upping the ante as negotiations go down to the wire with Greece refusing to compromise on key issues. In the most egregious tirade to be unleashed against the Greeks, European Council President Donald Tusk purportedly told Tsipras “game over” in relation to the bailout negotiations. Greece is firing back at creditors after calling the plans to gut the economy as extreme measures. No new proposals are expected today as name-calling dominates the newswires and increasingly aggressive demands are made. The Euro is presently trading sideways ahead of the European open as markets await new rumors of a deal.

Consumers Return to Spending

The American consumer has made a resounding comeback according to the latest spending data which showed a surge in expenditures on energy and services. The plunge in imports underlines the fact that consumers are not necessarily spending as much on goods, but rather are shifting more towards services and notably healthcare spending which has become an increasingly large component of the gains. While personal incomes also rose in line with expectations of 0.50%, the savings rate dipped to the lowest level since December as the decreased savings rate translated to spending increases. This is another green light from the Federal Reserve’s perspective on interest rates and is raising the probability of a September hike. Losses in stocks persisted yesterday as the S&P 500 broke below a critical technical support level, paving the way to substantial downside in the key equity benchmark.

Japanese Inflation Subsides

Overnight data released from Japan showed that the Bank of Japan is struggling to stoke inflation in the economy despite the quantitative and qualitative easing efforts. National core CPI expanded at a 0.10% annualized pace versus 0.30% in the prior reading. The regular CPI fell from 0.60% to 0.50%, raising the stakes for the Central Bank as the inflation target grows more distant. There were several positive elements that should not be overlooked including the gains in household spending both month over month and year over year. Spending expanded at a 4.80% annualized pace according to the latest reading while rising 2.40% monthly. Unemployment held constant at 3.30% and is not expected to see any demonstrable gains in the near future. The Yen has strengthened moderately since the releases as the growing signs of diminishing marginal returns from monetary policies pressure the currency higher.

USDCAD Equidistant Channel Technical Pattern

The US dollar continues to build on gains from earlier in the week as strengthening fundamentals indicators and renewed economic activity bolsters the rate hike outlook. With liftoff rapidly approaching and the Federal Reserve trying to maintain its credibility, the dollar looks likely to have substantial tailwinds aiding further appreciation. The USDCAD currency pair is currently trending higher in an equidistant channel formation with a bullish bias. The ideal strategy involves initiation of positions at the lower channel line targeting the upper channel line. A move below the lower channel line could potential indicate a reversal in the near-term trend and be the beginning of a channel-based breakout to be accompanied by renewed momentum lower.