Greeks Miss IMF Repayment

Daily Analysis - 01/07/2015

Greece Marks First Developed Nation to be in Arrears on IMF Obligations


As was expected and telegraphed by the Greek Government the other day, Greece withheld a $1.7 billion payment to IMF, asking for an extension of terms following the failure to pay.  The other bailout package also expired overnight, meaning the referendum on the 5th is of key importance in the dialogue going forward.

Greece Skips IMF Obligations

Rumors of Greece requesting an extension on the ESM facility from creditors was quickly dismissed, with Germany throwing cold water on the idea after the Greeks announced through official channels that the IMF obligations would not be repaid on time.  The brief rally in rally assets quickly reversed lower as news of the rejection sent stocks tumbling and investors scrambling into the dollar.  The upcoming referendum on July 5th is the next major event to watch, but does not necessarily mean an exit from the Euro Area in the event of a “no” vote.  Meanwhile, the Euro Area economy continues to experience protracted headwinds as evidenced by the downtick in the consumer price index and staggering unemployment which sits at 11.10%.  Annualized CPI continues to trend back towards deflationary territory, with the measure falling from 0.30% to 0.20%, raising expectations for expanded quantitative easing measures from the European Central Bank.


Japanese Manufacturing Outlook Improves

While most other regions of the world struggle to contain growing risks of a global slowdown, the weak Yen has bolstered Japanese manufacturers as evidenced by the latest Tankan survey data.  The surveys show that confidence amongst large entities continues to grow amid the improved operating environment and stronger investment in future production.  Manufacturing also climbed into positive territory as evidenced by the PMI reading at 50.1 after slipping into contractionary territory in the previous month.  USDJPY has trended higher following the data, with the rebound in data bolstering the upside in the pair.  Meanwhile, across the sea, calls for China to engage in quantitative easing to help ease existing liquidity conditions are growing.  Amid a downturn in manufacturing, displayed prominently in the overnight PMI and HSBC PMI which both missed expectations, fears of an economic hard landing scenario are not unjustified considering the softness in the real economy.


Crude Drops on Inventory Surprise

Major oil benchmarks retreated after the American Petroleum Institute released its latest weekly crude stocks figure which showed a surprising build of 1.875 million barrels versus expectations of a -1.300 million drawdown.  After hitting cycle highs, production in the United States continues to rise, adding to concerns that the last few months of inventory draws might be set to reverse, setting the stage for a larger decline in prices as storage capacity once more becomes a factor.  If Cushing and other storage facilities find themselves filled to the brim, it might beckon another plunge in prices as producers are forced to dump output on open markets instead of waiting for a further rebound in prices.  Both WTI and Brent tumbled after the API announcement, with each blend losing in excess of $1 per barrel.  The spread between benchmarks has widened from less than $3 last week to around $4.25 in today’s session.


AUDUSD Equidistant Channel Technical Pattern

After hitting multi-month lows, the AUDUSD currency pair is on the rise in the midst of a technical retrace to the upside.  Bolstered by reduced unemployment, strong credit growth and better than anticipated building approvals overnight, the Australian Dollar continues to appreciate despite investors clamoring for risk-aversion assets such as the dollar amid the uncertainty darkening the outlook for Europe and Asia.  The equidistant channel formation setting up since the week’s opening losses has a bullish bias, with the AUDUSD pair rapidly approaching the 60% threshold of a technical pullback.  The optimal strategy for playing the rebound in the pair is initiation of positions at the lower channel line targeting the upper channel line.  However, a renewed sense of fear amongst traders might see the US dollar bid against peers.  Any move below the lower channel line could be indicative of a potential channel-based breakout to be accompanied by increased momentum downwards.


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