Greece Offers Last Minute Proposal

Daily Analysis - 22/06/2015

New Proposition for Creditors Delivered Ahead of Today’s Meeting


The leftist Syriza Government submitted last minute reform proposals overnight that have so far been met with market optimism as the Greek banking system faces existential risks. Without a deal with creditors to unlock more bailout cash the financial system could easily collapse within a very short period of time.

Greece Tops Headlines

The Euro has been bid higher since reopening overnight as last minute proposals submitted by the Greek Government are hoped to be the compromise that unlocks much needed bailout cash. With the uptick in deposit outflow hitting a record pace, the financial system’s credibility is quickly fading. If the ECB decides to stop funding Greek banks through the Emergency Lending Assistance program, it could easily be the indication of coming capital controls and bail-ins. Greek Prime Minister Alexis Tsipras is due to meet with creditors from the Eurogroup, ECB, and IMF today to square away a deal. Although unwilling to compromise on the pension problem, Tsipras is suspected to be showing more flexibility on the issue of value added taxes in an effort to show creditors the sincerity of the offer. So far the EURGBP has responded positively as optimism prevails, gapping higher on the open and maintaining gains.


Bank of Japan Has the Firepower

It has been a busy few weeks for Bank of Japan Governor Haruhiko Kuroda as conflicting comments have seen volatility in the Yen rise as the Central Bank tries to maintain credibility amid record stimulus. In statements overnight, Kuroda focused on discussing the 2% inflation targeted by the BoJ after headwinds from weaker energy prices impacted the efforts to reach the goal. However, he maintained that the BoJ has the means to realize the inflationary ambitions while stating that the Central Bank has considered its exit strategy in remarks shared with the Japanese Parliament. Meanwhile, developments on the fiscal policy side might help Kuroda reach targets as the Government considers creating a flexible approach to spending instead of implementing a firm limit on spending to help fight the deficit. USDJPY is trading modestly higher since the overnight session.


Oil Consolidation Beckoning Breakout

Although seeing volatile intraday movements, key oil benchmarks continue to trade within a narrow range despite continued production gains while demand remains soft. The consolidation in prices could continue to persist, however, inventory gains in the United States with renewed output increases both domestically and abroad could hamper the medium-term recovery in oil prices. Saudi Arabia has announced potential to pump an additional 1.5-2.0 million barrels per day while Libyan output is on the rise, expected to reach 800,000 barrels next month. From a technical point of view, the longer the consolidation in prices typically translates to a more volatile potential breakout. With benchmarks already witnessing 2-3% intraday momentum daily this could spark continued turmoil in the asset class. According to the latest CFTC data, traders pared both long and short exposure in oil contracts as the range provides limited directional opportunities. WTI has risen near $1.00 since the reopening with Brent rallying a similar amount.


EURCHF Equidistant Channel Technical Pattern

The Swiss Franc has been fast appreciating as fears of a Greek exit coupled with slowing global trade impact the outlook for risk-assets. Despite the best efforts of the Swiss National Bank to keep the Franc weak and competitive for exports, the tide is turning even with investors paying negative interest rates for the safe return of capital. The EURCHF currency pair has been gradually trending lower after rebounding from the lows seen during the peg abandonment. The equidistant channel pattern setting up in EURCHF has a bearish bias with ideal positions taken near the upper channel line targeting the lower channel line. A move above the upper channel line could potentially be construed as an upside breakout to be accompanied by increased volume and momentum higher.


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