Obstacles to Deal Remain

Daily Analysis - 14/07/2015

Greece Racing Against the Clock to Secure Necessary Votes to Approve Creditor Bailout Package

The countdown to a new ESM bailout package for Greece continues unabated as regional parliaments are now tasked with approving the measures and extending the loans. More importantly, the Greek Parliament needs to vote in favor of the deal, requiring a tough sell for coalition members firmly opposed to the imposition of further austerity measures.

Greece Faces New Hurdles

Despite proclamations that Greece is saved and will be able to fight for another day of survival, substantial challenges lie ahead as many Euro Area partners are unconvinced of Greece’s ability to implement potential reforms. Alexis Tsipras is busy trying to quell a rebellion within his own Syriza party after agreeing in principle to the creditors proposal after endorsing a deal that contradicts the values the party was elected upon. Tsipras may be able to reach across the aisle for support from other legislators outside the ruling coalition, however, the mutiny within his own party threatens to unravel the existing government and could potentially lead to snap elections. Outside of Greece, Finland is leading the charge against issuing new loans to Greece after it was disclosed that German Finance Minister Schaueble also opposes any further bailout arrangements for the Greeks. Markets have largely written off the prospect of a deal as the Euro continuing to fade lower.

Iran Strikes a Deal

According to the latest reports, Iran and world powers have managed to arrive at a nuclear deal this morning after days of round-the-clock negotiations and missed deadlines. Although not finalized as it still must pass both through the US Senate and Iranian Majlis before the actual agreement is implemented, it has passed a major hurdle and marks the culmination of several years of strenuous talks. Details are yet unknown and the market reaction will likely be muted until more information is forthcoming regarding the lifting of sanctions and how inspections of nuclear facilities will be conducted. Nevertheless, both the Brent and WTI crude oil benchmarks are giving up ground quickly as the deal paves the way for massive infrastructure overhauls in the energy sector and increased Iranian oil exports hitting global markets. Prices are rapidly re-approaching last week’s lows as global output continues to rise despite softer demand.

Chinese Re-Leveraging

After a short period of deleveraging in the Chinese economy through debt alleviation for local governments and emphasis on reducing margin debt trading in stock markets, leverage is once again on the rise after rebounding since last week’s efforts to prevent a stock market rout. Newly minted Chinese retail traders are back to buying as the sensational volatility and returns attract newcomers to increasingly risky and dangerous markets. While China has made an effort to hunt down speculative and abusive short sellers, the latest bounce in equity indices is reversing as evidenced by today’s continued volatility and mounting losses in the Shanghai Composite with the cash equity trading session approaching the close. Regional peers however are outperforming the softness in China with the Japanese Nikkei and Australian ASX both posting major gains on the back of a perceived Greek resolution. The Australian dollar is now giving back ground won overnight versus peers.

USDCHF Ascending Triangle Technical Pattern

Even though headline news has arrived at the conclusion that a Greek deal is all but assured and China is doing everything it can to prevent further losses in equity markets, risk assets continue to give ground as investors increase demand for safety-assets. The US dollar continues to benefit from the weakness in other currencies and has improved markedly after last week’s rally. Meanwhile, the Swiss National Bank is still attempting to keep the Franc competitive, leading to further upside in the USDCHF currency pair. The pair is currently setting up in an ascending triangle technical formation exhibiting a strongly bullish bias with the consolidation between the prevailing uptrend line and resistance at 0.9532 setting the stage for a potential USDCHF upside breakout. However, a move below the uptrend line could signal a potential reversal in the USDCHF pair.