No Deal for Greece

Daily Analysis - 15/06/2015

Greece Balks At Proposed Pension and VAT Reforms


The Greeks remain stubborn in their defiance of calls to accept the proposals focused on reforming one of the costliest pension programs in the Euro Area. Talks with Euro Area creditors ended on Sunday with no deal as parties refused to compromise.

Bailout Talks End

Greek bailout negotiations between Greece and European creditors ended yesterday with no new deal as neighbors begin to contemplate the impact of an exit. Germany is already busy drawing up plans to go ahead and contain any default in measures that probably contain capital controls and bail-in measures to ensure that the crisis does not spread. Adjacent Macedonia, a Balkan nation bordering Greece has already prevented withdrawals by local branches of Greek banks operating in the region in a sign that potential bank panics are in the pipeline. With June’s IMF repayments coming in mere weeks and no visible cash influx to meet the looming obligations, Greece’s days are likely numbered with a Cyprus-style situation expected to ensure. The EURUSD pair continues to trend above key support at 1.1200 as the dollar gains modestly ahead of Wednesday’s FOMC Statement and monetary policy decision.


Markets Await FOMC

This week’s FOMC Meeting marks a critical juncture for the United States Federal Reserve as it seeks to exit crisis era monetary accommodation and move towards interest rate “normalization.” The strengthening of retail sales numbers released last week when coupled with robust job creation and personal income gains means that the Federal Reserve must only wait for an anchoring of inflation expectations before raising the key rate off from near-zero. The latest data raises the specter that the FOMC will choose to raise rates in September. While consensus estimates for this meeting imply limited probability of an adjustment to rates, anticipation that September will see a hike and hints in the statement might provide a substantial boost to the US dollar as it attempts to retest multi-year highs. Meanwhile, with the dollar stable, gold prices remain under resistance at $1188 per troy ounce.


Saudi Arabia Opens Exchange

In a dramatic shift in policy, Saudi Arabia moved to open its national stock exchange to foreign investors, marking the first time that investors outside the Kingdom can participate in local equity markets. The Saudi Stock Exchange or Tadawul is the biggest benchmark in the gulf region, meaning that it will likely be a major draw for foreign institutions looking for regional exposure outside some of the smaller hubs in the area. There are ownership restrictions, especially for specific companies dealing in religious matters and for the total amount of foreign ownership that can occur in stock holdings is capped at 49% total and up to 5% for each individual investor. While these restrictions might seem onerous, this is the first step towards liberalizing the financial economy of the Kingdom and represents a big step towards inclusion in major global benchmarks like MSCI.


DAX Equidistant Channel Technical Pattern

The German DAX continues to correct from record highs as the pace of asset purchases in the Euro Area misses targets and the temporary strengthening of the Euro impacts exports. Adding to woes is the uncertainty from Greece which continues to drag on sentiment. Even though growth in Germany remains positive, forthcoming risks remain just as the country seeks to improve growth and increase employment. The DAX is presently trending in an equidistant channel formation with a downside bias. The index has corrected over 10% from highs and the bearish technical pattern means further downside is likely in the coming weeks especially with the arrival of summer trading months. The chief strategy for exploiting the pattern is taking positions at the upper channel line targeting the lower channel line. Should prices move above the upper channel line it could indicate a potential breakout with prices likely to march higher towards the previously established highs.


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