Greek Deal Salvages Euro's Fall

An ugly day of risk aversion reversed after Greece reached a bail out deal and the IEA dumped oil onto the market. The rollercoaster day in markets saw EUR/USD fall nearly 200 pips before bouncing 100 pips on an austerity deal. Other markets followed a similar pattern in volatile trading.

There were several major developments today:

1) The EU, IMF and Greece reached a 5-year austerity deal which includes tax hikes and spending cuts. The agreement paves the way for a new bailout loan, if approved by Greek Parliament. Votes are scheduled for Tuesday and Thursday of next week and it must be approved by July 3. Earlier negative sentiment was built on a Greek newspaper reported that the EU, ECB and IMF doubted that about half of the 6.4B in austerity plans for this year will succeed. The Troika reportedly wanted new measures to cover the gap of 3.8B. It seems clear that the new measures are included in the latest deal, scaled back, or both.

2) Trichet warned of systemic risks and contagion tied to vulnerable nations (PIIGS) and banks.

3) The International Energy Agency pledged to release 60 million barrels of oil, half from the U.S. SPR; ostensibly due to disruptions and Libya and higher summer demand. Note that the IEA controls 4 billion barrels so this is just 1.5% of reserves. WTI crude fell by as much as $5 to below $90 but rebounded and closed down $3.55 to $91.88. Brent fell $6 to $108. In the Premium section, Ashraf talks about how the SPR could be a game changer.

4) Disappointing services and manufacturing PMIs in China and Europe continued to weigh (see below) after the Fed downgraded growth forecasts.

5) Initial jobless claims rose to 429K vs. 420K prior and 410K expected.

6) The EU Summit began Thursday and runs through Friday.

Technical developments were equally intriguing as the S&P 500 bounced precisely off the 200 dma for the second time in two weeks. The index was down more than 2% intraday but closed down just 0.3%. Ashraf has more and seven fresh trading ideas in the Premium section (http://ashraflaidi.com/products/sub01/access/?a=444)

The euro was still the worst performer, followed by CAD. The leaders were USD and CHF.

Gold and silver were ravaged, falling 2% and 4%, respectively.

Market participants may get a chance to catch their breaths in Asia-Pacific trading with no major data on the docket. The sole notable releases is at 2350 GMT with Japans corporate service price index expected at -0.7% y/y compared to the -0.8% prior.

EURUSD will continue hovering between $1.40 and 1.45 as it awaits these key dates (see below).

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