Markets Trade Limit Down

Daily Analysis - 29/06/2015

Financial Markets Across the Globe Open to Losses As Greek Butterfly Flaps its Wings

News of the Greek deal rejection reverberated across markets overnight as traders prepare for the potential of the chaos to spread through the contagion aspects. Financial assets are weaker across the board, led by the downside in equity futures.

Greece Shutters Banks

Markets have not yet been convinced that Greece is set to exit the Euro Area, but capital controls have been introduced, with banks to be shuttered until July 6^th and the stock market closed for the day. Cash withdrawals across the nation have been limited to EUR 60 per person per day, including local branches of foreign banks. Even after assuring the safety of deposits, Greeks are flocking to withdraw funds from banks and racing to stock up on basic provisions across the nation. The Government is presently applying for another bailout extension for the existing measures set to expire tomorrow, however, a deal seems unlikely as other Euro Area nations attempt to ring fence themselves from losses. Futures markets are trending considerably lower since reopening with EURUSD plunging almost 200 pips before recovering.

Chinese Cut Rates Again

After several successive measures intended to ease liquidity conditions across the country through reserve ratio requirement cuts and a quantitative easing program to help local governments refinance, the People’s Bank of China stepped up action to fight the worsening in conditions. Over the weekend, the Central Bank moved to cut the benchmark lending rate by another 25 basis points to 4.85% as growing headwinds force policymakers to act. The PBOC also cut the deposit rates by 0.25% to 2.00%. The Shanghai Composite is trading limit down, losing 10% in the span of very limited time as the Greek situation bled across borders. The Chinese benchmark is now firmly trading in bear market territory following the losses and volatility last week, down 22% from the peak as margin calls accelerate and the Government cracks down on margin trading accounts.

Energy Slides on Greece

Traders pared long positions in crude oil and natural gas following the decision to implement capital controls across Greece as the country verges on the brink of default. The reverberation from the decision to reject the latest set of conditions from the institutions including the European Council, European Central Bank and International Monetary Fund left markets bidless in the reopening hours as fear began to spread of contagion. Energy markets were not immune from the developments as evidenced by the spectacular drop in crude oil benchmarks. West Texas Intermediate fell below key support at $58.73 while Brent is trading -1.56% weaker, rapidly approaching a critical support level sitting at $62.10 per barrel. Natural gas was not left out of the equation with NYMEX Henry Hub down over -0.79% at $2.748 per MMBtu (British thermal unit).

USDCHF Equidistant Channel Technical Pattern

The US dollar continues to benefit from the chaos in Greece as investors pick quality over yield. The flight to safety has seen the dollar surge higher against major peers including the Euro and Pound. The other notably benefactor from the weakness has been the Swiss Franc. However, the USDCHF pair continues to tick higher as investors favor the dollar. The equidistant channel pattern setting up in USDCHF has a bullish bias with the pair trending towards the upper channel line on the back of the potential for a Greek default. Should the channel persist, the optimal strategy for trading the USDCHF pair is initiation of positions form the lower channel line targeting the upper channel line. Should USDCHF move below the lower channel line, it could be indicative of a reversal and potential downside breakout on the back of further risk aversion.