New Day, New Deadline

Daily Analysis - 08/07/2015

Creditors Offered Greece No New Proposals in a Blow to Athens’ Recent Referendum


In spite of replacing the Finance Minister, Greek banks will remain closed until Thursday with the nation no closer to reaching an agreement with creditors. The clock is running out after defaulting on an IMF loan and no receipt of expanded assistance from the European Central Bank.

Greece Given New Sunday Ultimatum

Instead of relaxing aid conditions and contemplating debt relief, Greece’s European partners are proving more stubborn after the referendum results, tabling last week’s offer and demanding greater reforms and conditions. German Chancellor Angela Merkel hit the newswires with such incendiary rhetoric that coming to a deal at this point is highly unlikely as she stated unequivocally there will be no debt relief and haircut for Greece. Although there is an apparent schism between Euro Area leaders after Jean Claude Juncker remarked that the “last moment for Greek Government will be Monday morning.” There seems to be a substantial amount of confusion, meaning that the probability of a Greek exit is rising by the day. Europe’s continued unwillingness to consider restructuring the existing debt will likely prove its undoing as outside investors lose confidence in the Euro and its leadership.


Panic in China

More concerning than the continued dispute about the veracity of Greek reform proposals is the rout in Chinese stocks which found over 50% of traded stocks halted after experiencing another plunge today. The Shanghai Composite suffered its worst intraday loss since 2007, falling over 8% before recovering moderately. The increasing cascade lower has brought about several new policy moves from the Government censor, implying that journalists refrain from using words such as plunge, rescue, and other language that would point to a protracted decline. While the Central Government is easing rules and regulations to reflate the bubble, the drop in market value and sheer number of stocks halted has created a panic environment amongst investors. Continued deleveraging in the real economy and financial economy are likely to contribute to further weakness in commodities as margin calls mount. Weakness has also spread to neighboring Hong Kong in the first signs of contagion.


Another Nuclear Deadline Passes

Iran and world powers missed another deadline for rounding out a nuclear deal as foreign ministers and negotiators attempt to bridge gaps between the parties. Even though certain members have continued to state their willingness to walk away from negotiations should the outcome not prove fruitful, they remain optimistic that a deal can be done despite the lack of visible progress. However, after ignoring several deadlines and red lines, the latest push to build a consensus might mean the window is closing to reach an accord. While Iran is betting on negotiations to lift crippling sanctions, the outlook for the key oil export industry is not so promising. Although they have 1 million barrels per day in spare capacity that could be added to global oil markets, it comes at a time of extreme saturation. Yesterday’s plunge in prices could indicate a resumption of the downtrend that sees a retest of January lows.


EURUSD Equidistant Channel Technical Pattern

The standoff between Greece and creditors looks to be no closer to resolution than any point in previous negotiations as the time to strike a deal winds down. The continued uncertainty of whether or not Greece will exit is weighing heavily on the Euro as news headlines dominate the momentum in the EURUSD pair. Although the currency rallied late in yesterday’s session, the swift uptick was met with an equally rapid retrace lower. The current equidistant channel pattern setting up in the pair has been forming since late June and is exhibiting a strongly bearish bias. The ideal strategy for taking advantage of the possibility of further contagion is initiation of positions at the upper channel line targeting the lower channel line. A move above the upper channel line could be an indication of a reversal and potential channel-based breakout should conditions across Europe ease and the outlook exhibit improved clarity.


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