Time to Gather Greek Stones

Tsipras with his political ambitions representing a problematic state and not just an abstract "popular opinion"
In the sparring Greece - creditors, dollar has been winning so far. First of all, pairs with euro and yen suffered as financing assets in the conditions of growing risk; moreover, yen was affected most of all in the result of China's stock market crash. British pound held out for a long time; however, it still has the chance to recover with the help of consumer prices inflation report. A large "beast" - FOMC - is coming back to the market.

As it was assumed, the referendum has not changed anything in the relations with creditors; however, the Greece's current surrender does not signify the end of series. Experts have been in shock so far regarding the extent of retreat just for the purpose of saving IMF as a creditor:

  • State assets in the amount of 50 bln euros will be going under the control of trust funds;
  • Until July 15, passing laws on main tax increase;
  • Cardinal pension reform and new privatization program;
  • Dramatic limitation of cash transactions and, possibly, additional tax on deposits.

Finally, it is Tsipras with his political ambitions representing a problematic state and not just an abstract "popular opinion". The time of blackmail has ended; it is obvious that he is not willing to leave Eurozone and, therefore, adopted more severe conditions that come into conflict with the results of the plebiscit. The current government will likely operate for 2-3 more months, and Tsipras needs to guarantee new agreements in order for the country to receive the first tranche before the fall election. Nevertheless, the idea of the Greece's temporary pullout from EU has not been removed from the agenda. Tsipras has received Greece's preliminary agreement for that. That means that everyone will reach an agreement, and that will happen quite soon (Greece will need to adopt the reform program by its government until the 15th); however, that does not mean at all that it will last for a long time. The Greek financial tragedy is a comfortable fact for manipulation with markets, and, therefore, it will last for years. Meanwhile, there is a hope for temporary positive now, which is a big plus for the European market. ECB left the extent of the Greek ELA at the level of 89 bln euros; however, this amount has been frozen by the regulator until July 20 (the date of 3.5 bln euro repayment to ECB and 1.5 bln euro overdue payment to IMF). So far, there has not been any positive from the limits on cash withdrawal (60 euros a day).

The market is beginning to live on other news. The market's interest to the ECB asset redemption program is coming back since it is obvious, anyway, that the stated QE volumes will not be enough for reaching the goals set by the Central Bank with regard to inflation. For FRS, August - September is the usual time for the beginning of active actions. The interesting thing about the US budget data is that the budget deficit is at its 7-year minimum (it is "only" 431 bln), which means that under those high rates, US will move to surplus for another presidential term. The probability of the FRS rate increase in September looks illusive today; however, if it is not increased in September, it will be late in November- December. Today, the Federal Reserve has to have a clear assessment of the concequences of dollar strengthening for American exports and companies with a large share of proceeds in foreign currency. However, the difference between the Federal funds rate and the discount rate is only 0.5 of percentage point, which is not normal for structural mutual settlements.

Yen is much faster working off international news than its domestic events: it happily responded to the situation with Greek dynamics until China's stock market crash. Now, analysts are waiting for the Bank of Japan's six-month economic forecast by the results of 14-15 July meeting. If there are no surprises, the response will be more moderate and predictions on USD/JPY will totally depend on the dynamics of regional stock indexes (the rate is in inverse correlation). Now, the pair is near its week's maximums of 123.40/50; the growth has still been retained by average offers for 123.50, and the closest resistance at levels 123.73/124.00. The fall potential to support level 122.20/50 still remains.

Very strong support in EUR/USD, which is protected by option level is at 1.1090, profit taking near 1.1020 dropped euro below the figure; however, the current tendency has not become clear yet. The market's negative with regard to euro is obviously insufficient; the conditions for Greece coordinated in the last moment will push the pair downward; however, we should expect fluctuation in the range of 1.1060 - 1.10950 next week. Let's watch the foundations and keep in mind Draghi's press-conference on Thirsday and two CPI indicators of Canada and the USA on Friday; if they move "simultaneously", we are guaranteed a profitable drive at the end of the week.

Author: Navsher Bartash,
ForexChief Currency strategist