Greece Down to the Wire

Daily Analysis - 03/06/2015

Troika Set to Release Final Proposal to Greece After Rejecting Greek Initiatives

Greece’s creditors are set to introduce a draft proposal today to avert a possible default on Friday after rebuffing Greece’s own plans to fix the economy and restore growth. Greek Prime Minister Tsipras must not only fight for the country’s survival, but also try and keep the ruling coalition together as further demands from creditors cause fractures within the party.

Troika Hands Greece Ultimatum

After flat rejecting the list of Greek proposals delivered yesterday in advance of the Institutions’ draft of the compromise, creditors today are set to release their own proposal. It is widely viewed as the final ultimatum for the country and threatens to add to existing political discord, possibly bringing the ruling coalition to the brink. Much of the proposed solutions which include labor reforms and further privatizations of state assets are unlikely to gain traction back in Greece, making a potential risk-reversal in the Euro completely possible after yesterday’s spectacular rally. Meanwhile, Greece continues to pivot eastward after the invitation to join the BRIC bank. The Greek’s just signed a memorandum of understanding with Russia to build a gas pipeline across the nation to connect Turkey with the rest of Europe. The Euro is retreating slightly from yesterday’s exuberance, ticking lower against the Pound ahead of today’s announcement.

American Auto Sales Climb

Not be outdone with the recent gains in European car sales which have steadily climbed over the previous few months, American automobile sales rose to a 10-year high in May according to numbers released yesterday. This rapid expansion in deliveries has had unintended side-effects, mainly the burgeoning subprime auto-loan market which is on pace to top $1 trillion in outstanding loans. Over 30% of automobile transactions were financed with the time to maturity for new car loans hitting a record 67 months. The resurgence of subprime lending coupled with the student loan bubble are further indications of another imminent debt crisis just around the corner. The dollar weakened broadly against peers yesterday, with the dollar index experiencing its second worst drop in the last 6-years after the EURUSD currency pair rallied over 2% on rumors of a Greek deal.

Australia Reports Strengthening GDP

Annualized GDP expands more than expectations but trends below prior number despite strengthening quarterly growth which rose from 0.50% to 0.90%, beating estimates of 0.70% as the impacts of looser monetary policies are felt across the economy. This is the fastest growth seen since the first quarter of 2014 which recorded 1.10% growth. The positive momentum came from exports which added 0.50% to GDP supported by the rise in consumption expenditures which add 0.50%. Nevertheless, despite the positivity, dragging on the economy was business investment as companies slash capital expenditures. The weakness in the construction sector also negatively impacted the number, even though the housing sector remains a concern for the Central Bank due to the propensity to form a bubble. The Australian dollar has continued to add to yesterday’s gains following the monetary policy decision, with AUDUSD trending higher, rallying 0.36%.

AUDJPY Equidistant Channel Technical Pattern

The Australian dollar continues to benefit from the positive economic momentum after the country reported stronger than expected quarterly GDP growth and left loose monetary policies on hold. Meanwhile, the Bank of Japan is set to release data on bond and stock purchases which will likely to show continued expansion of the monetary base, further weakening the Yen against peers. Although not meeting stated objectives, the positive economic trajectory continues to benefit the AUDJPY pair which is presently trending higher in an equidistant channel formation. Long positions from the lower channel line should be targeting the top of the channel. Fighting the near-term uptrend is not suggested unless the AUDJPY pair moves below the lower channel line which could be considered a downside breakout.