Intraday Market Thoughts Archives

Crucial rebound in metals to produce an important weekly close. Were adding 3 charts to clarify todays Premium Trades (EURUSD, Silver and E-mini S&P500 ESU) to chart you ahead of next weeks FOMC and the all-important volatility ahead of that meeting. It is crucial for traders to distinguish between countertends/whipsaws and impulsive moves. Direct Access here: http://ashraflaidi.com/products/sub01/access/?a=496 Non-subscribers can go here: http://ashraflaidi.com/products/sub01/

Ashraf

Ezone current account deficit grows wider, trade balance unchanged. Merkel sees German growth near 3%. UK officials talk QE again. Market will continue to focus on EconFin meeting in Poland and later to Canadian foreign securities purchases, US TIC data and UoM Consumer Sentiment survey.

EcoFin meeting in Poland is in focus as markets will be waiting for reassuring message that the measures from 21st of July EU summit will pass national governments and that coordinated actions will be implemented should it be required. Market sentiment is likely to worsen again when the next set of disappointing data comes out as liquidity operations announced yesterday show just how serious the condition of the western economies really is.

On the data front, Eurozone Current account deficit has widened in July to EUR -12.9 bln from EUR -7.1 bln and Trade balance remained unchanged at EUR -2.5 bln.

EURUSD gives up a substantial chunk of yesterdays gains despite reassurance from chancellor Merkel that the German economy will grow near 3% in 2011 and that Eurozone will do what is necessary to defend the Euro. Merkel has yet again expressed her anti Eurozone bond stance when she said that there will not be any Eurobonds. EURUSD slid from yesterdays high of 3937 to 3777 and currently trades slightly above the 1.38 mark.

QE talk in the UK seems to be becoming the norm these days. UK business secretary Vince Cable said that QE is an initiative that can restore business and consumer demand and BOE Charles Bean said that more QE would be effective as recent economic indicators were disappointing. Despite these comments GBPUSD trades higher above 1.58 and EURGBP is lower below 0.8750.

The US session starts at 8:30 am ET with Canadian Foreign Securities purchases that are expected to reach CAD 2 bln in July from a CAD -3.4 bln in June.

US net long term TIC flows due at 9:00 am ET are seen significantly higher at USD 31.3 bln in July from dismal USD 3.7 bln in June.

9:55 am ET will bring University of Michigan Consumer Sentiment index that is estimated to increase to 57.3 in September from 55.7. Despite this anticipated increase, consumers confidence has deteriorated considerably over the past three months and reached levels last seen at the beginning of 2009.

Markets look to Ecofin after yesterdays central bank intervention, Europe trade balance, UKs Osborne speaks in wake of poor data this week, will US Michigan confidence improve. RBI raised to 8.25% as was expected.

The European Economic finance ministers (ECOFIN) meeting in Poland starts today, and such is the concern about US events in Europe US Treasury Secretary Timothy Geithner will also be attending. Markets will be expecting to see European leaders finally grasp the nettle of the crisis in Europe with something more tangible than just words and rhetoric.

Yesterdays co-ordinated central bank action to turn on the liquidity taps in Europe, steps eerily reminiscent of 2008 and the Lehman crisis, may have averted a credit squeeze in the funding markets, but if anyone thinks it has eased the problems in the euro zone they could well be in for a rude awakening.

The problems surrounding the solvency of Greece havent gone away despite various calls for euro bonds, and with the troika set to return to Greece on Monday ministers will need to come up with more than words, otherwise markets will start to slide back again.

In economic news the European trade balance for August is expected to swing to a 1.7bn surplus after showing a 1.6bn deficit in July with exports expected to pick up.

In the wake of the poor economic data this week and the fears about the UK economy, markets will be listening for any change in tone when Chancellor George Osborne is due to speak. Concerns about the UK economy were not helped by yesterdays disappointing retail sales numbers for August which contracted by 0.2%, as rising prices eat into consumers disposable income, while the latest quarterly survey of inflation expectations showed that consumers continue to think that prices will continue to rise over the next 12 months.

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In the US eyes are starting to turn towards next weeks FOMC meeting after manufacturing data yesterday from Philadelphia and New York continued to show weakness. US Michigan confidence for September is expected to improve from to 56.6 from the previous reading of 55.7.

Hopes for further action to end the European debt crisis sparked a rally in risk after the central banks coordinated to relieve dollar funding strains. EUR, CHF and CAD were the top performers; USD and JPY lagged. The interest rate decision from India's central bank is the lone event of the Asia-Pacific session.

The ECB will work with other central banks to deliver three-month USD loans ensure European banks have access to dollar-funding through the remainder of the year. The euro shot more than 150 pips in the daily high of 1.3935 after the announcement and then settled in a range around 1.3688, where it ended the day.

US economic news was mixed. On the positive side, industrial production rose 0.2% versus the 0.1% expected. On the negative side, initial jobless claims grew to 428K versus the 411K expected. The Philly and Empire State manufacturing surveys were both slightly weaker than expected.

August CPI hurt expectations for QE3 after inflation climbed 0.4% in the month compared to the 0.2% expected. Core inflation was in line at +0.2%.

The S&P 500 gained 1.7% to 1209. Gold fell $36 to 1790. Silver fell 64-cents to $39.89. WTI crude gained 33-cents to $89.24.

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USDJPY was especially volatile early in the US session on a rumour that Japan checked rates. This dollar rallied 50 pips on intervention fears before falling back to its previous level. The pair closed the day virtually unchanged at 76.71.

RBI Decision

The event to watch in the Asia-Pacific session is the decision from the Reserve Bank of India. The Bloomberg survey shows 14 of 17 economists expecting a rate hike. It would be the twelfth hike since January 2010. Inflation remained above 9% in the most-recent report but growth slowed to 7.7% in Q2 the slowest in 21 months. The bank rate is 6.0% and the repo rate 8.0%. A hike alone would not hurt risk appetite but if its accompanied by hawkish rhetoric, risk assets may decline. The worst-case scenario for risk may be no hike combined with worries about a domestic/global slowdown. This could also boost gold.

Risk appetite is further boosted by a central bank combo of liquidity injecting operations (ECB, Fed, BoE and SNB to create liquidity via USD swaps to reduce the cost of USD-funding to European banks) coincidentally 18 hours after we posted those LIBOR spread charts showing how US LIBOR is closing in on the EU-US spread. Our Premium Trades are now up, accessed here: http://ashraflaidi.com/products/sub01/access/?a=495 Nonbsubscribers can go here: http://ashraflaidi.com/products/sub01/ ARABIC SPEAKERS can watch Ashraf on CNBC ARABIA's Al Haseela at 17:40 GMT (21:40 Dubai Time)

SNB kept rates unchanged and reiterated it would defend the 1.20 level against the Euro; UK retail sales disappoint; Eurozone CPI remained unchanged. Market turns to US CPI, jobless claims, indus production & Philly Fed, Trichets speech all due later today.

The SNB has kept the target for CHF libor rate unchanged between 0-0.25% and reiterated that it will defend the 1.20 level and that it is prepared to buy foreign currencies in unlimited quantities to weaken the Franc. EURCHF gained about 50 pips on the comments and currently trades around 1.2070

GBPUSD has reached above the 1.58 level despite UK Retail sales falling 0.2% in August. The yearly figure remained unchanged. The Office for National Statistics said that it was impossible to quantify the impact of the riots that hit London and other cities at the beginning of August. Ashrafs EURGBP trade mentioned in his latest premium piece is close to hitting its target as EURGBP broke above yesterdays highs at 0.8724

EURUSD has regained the 1.38 level despite an article published by Reuters that European finance ministers were warned of a renewed risk of a credit crunch by senior EU officials who also said that Eurozone faces a risk of vicious circle between debt, funding and negative growth. German chancellor Merkel has also repeated her stance against Eurobonds saying that they would be absolutely the wrong way forward.

On the data front, Eurozone annual CPI was steady at 2.5% in August and the core measure remained unchanged at 1.2%.

The NY session starts at 8:30 am ET with August CPI that is expected to tick up to 1.9% in August from 1.8% on annual basis. Core yearly CPI is seen steady at 3.6%.

Unemployment claims are anticipated to print 410K and Current account deficit is likely to widen slightly to USD -122 bln from USD -119 bln.

Last news that is due at 8:30 am is Empire state manufacturing index that analysts predict will lower the rate of decline and show -3.9 in September from -7.7 in August. Nevertheless, the print is still seen below 0 which indicates worsening conditions.

Capacity utilization rate should remain at 77.5% and Industrial production should decline to 0.1% from 0.9%. Both indicators are due at 9:15 am and show August results.

September Philly Fed index due at 10:00 am is expected at -14.7 from -30.7.

Volatility could increase at 2 pm when J. C. Trichet speaks at Eurofi Financial Forum in Poland.

UK retail sales expected to slide on August riots, thereby increasing speculation of further QE, Europe set to remain in focus in the wake of last nights Merkozy teleconference, EZ CPI expected to remain at 2.5%, Swiss rates expected to remain unchanged, US manufacturing and CPI data could give clues with respect to next weeks FOMC. Get the LIBOR SPREAD charts from the latest PREMIUM Intermarket Insights (see link below).

GBP continues to be weighed down by disappointing figures showing the UK economy is in danger of grinding to a halt and contracting in Q3. Given last month's social unrest the latest retail sales data for August arent likely to offer much respite with expectations for a decline of 0.2%, month on month, and year on year. It wouldnt be surprising however if the figures came in much worse that expectations, and if they did it would certainly add to the pressure for action on the doves side of the argument for more QE.

Europe is set to remain in focus despite last nights declaration by France and Germany that Greece belongs inside the euro zone. It is hard to feel that markets will be convinced by words given that they have rarely been backed up by actions at any stage in the course of this crisis. Greece has been urged to plough ahead with its reforms and fulfil its obligations, while Italy finally passed its 54bn austerity budget.

Both governments face huge political obstacles in actually implementing the measures given a backdrop of slowing and/or negative growth.

Todays August CPI figures are expected to remain unchanged from Julys 2.5%, and underscoring the fact that the next move in rates for the ECB is likely to be lower.

In the wake of recent monetary policy decisions the Swiss National Bank is expected to leave interest rates unchanged and reaffirm its determination to weaken the franc. This is especially in light of yesterdays sharp fall in import prices, as markets remain reluctant to test the banks resolve with respect to the peg at 1.20 against the euro.

This afternoons release of August US CPI data, as well as the September empire manufacturing and Philadelphia Fed manufacturing survey could well raise or lower expectations as to the likelihood of further measures, or otherwise by the Fed at next weeks FOMC meeting. Particular attention will be on those two manufacturing numbers and some form of recovery given the abysmal readings in August.

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Hopes for additional Eurobonds sparked a rally in the euro and risk appetite on Wednesday. The euro and yen were top performers with CAD and AUD lagging. The RBNZ held rates at 2.50% early in Asia-Pacific trading. Ashraf's Premium trades hit their targets in S&P500 & EURGBP.

Downgrades to French banks and a disappointing US retail sales report were pushed aside as the market clinged to the idea that Eurobonds can solve the regions woes. The speculation came after European Commission leader Barrosso said he will present several options on Eurobonds, some of which wont require a re-write on European treaties. German Fin Min Schaeuble didnt rule the idea out. He said Germany is against it but will wait to hear the proposals before deciding.

These developments were enough to spark a 150 pip rally in EUR/USD and a 1.3% climb in the S&P 500. The gains came despite a flat reading in US Aug retail sales (vs. +.2% exp). Ex-autos missed by a similar margin and the July figures were revised lower.

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Were skeptical. Firstly, commodities flashed a opposing signals with oil and copper both down more than 1%. Secondly, bonds were generally sidelined and a US T-Bond auction showed a strong demand for safety. Third, risk FX outside of EUR did not take part in the rally.

The Australian dollar has been particularly interesting this week. It has declined in three straight sessions despite three consecutive days of solid gains in stocks. This divergence cannot persist as the positive correlation in AUD and the S&P500 over the past month has been nearly 91%. There are rumours of a large sovereign seller of AUD and this makes sense. It would be confirmed if AUD falls dramatically on a risk off day.

RBNZ Decision

The RBNZ held rates at 2.50% as was widely expected. Similar to the RBA, the central bank cited external risks to global growth. NZD/USD immediately fell 50 pips but regained a portion of the losses shortly after. The upshot for NZD was that the RBNZ said rates could rise if global worries dont persist. The negative factors were a downgrade to the 2012 domestic growth forecast and a continued effort to jawbone NZD lower.

The lone release of note remaining in the Asia-Pacific session is the Melbourne Institutes measure of Australia inflation expectations for the next 12 months at 0100 GMT. The prior reading was 2.7%.

Our latest Premium trades examine the cost of USD funding as measured by USD 3-month and the spread between Ezone & US. As Eurozone banks rush into raising USD funding to alleviate the unfolding liquidity crunch, the cost of USD funding will further increase, thereby boosting USD. This has now reduced the Euro-USD LIBOR spread to a 3-month low. (We ask those who use our charts to CREDIT AshrafLaidi.com as a source and respect COPYRIGHTS LAWS). To get DIRECT ACCESS to today's Premium Trades, click here: http://ashraflaidi.com/products/sub01/access/?a=494 NONsubscribers can become members here: http://ashraflaidi.com/products/sub01

Ashraf Laidi

UK labor market data mixed; Eurozone industrial production higher. Market turns to US PPI, Retail sales, Canadian Capacity utilization rate and the teleconference between Merkel, Sarkozy and Papandreou.

UK showed mixed labor market data. Aug claimant count declined to 20.3K from previous 33.7K but the unemployment rate remained steady at 7.9%. The claimant count rate was unchanged at 4.9%. Q2 public sector employment experienced the largest decline on record as there are now 240K fewer people employed.

GBP has been under pressure over the last three weeks and reached a 1.5705 low today as the speculation about QE2 grows. MPC member Adam Posen has been QE proponent year long and it seems that his quest is gaining traction as the Chancellor George Osborne said that there are no barriers to launching more QE in the UK.

Eurozone Industrial output increased 1% in July after 0.8% contraction in June. On annual basis production rose to 4.2% from 2.6%. The bulk of the gains came from Germany where production surged 4.1% while Italy, Spain and Portugal all contracted. Another worrying aspect of today’s print is that the last two releases were revised lower.

Euro is currently trading higher after the head of the European commission Jose Barroso called for deeper Eurozone integration that would stop negative cycle of debt crisis. Barroso also said that the European commission will soon present options for the introduction of Eurobonds.

The New York session starts at 8:30 am ET with August PPI that is expected to decline to 6.5% from 7.2% on annual basis. Core annual PPI is seen slightly higher at 2.6% from 2.5%. August Retail sales are anticipated lower at 0.2% from 0.5%.

Market volatility could also increase as Treasury secretary Geithner starts his speech at the Alpha conference in NY at 8:30 am.

Canadian Capacity Utilization rate due also at 8:30 am is seen steady at 79%.

The market will also focus on the conference call between Merkel, Sarkozy and Papandreou that is scheduled for 12:00 pm ET. Over the past few days, several rumors made the rounds about imminent Greek default so convincing financial markets that the situation is stable is an important and difficult task.

UK unemployment expected to fall slightly while sterling weakens on QE speculation, French bank downgrades finally arrive, Swiss producer prices, Euro zone industrial production, Japanese Industrial Production. UK Jobless due Next

The pound hasn’t had a particularly good couple of days even falling back against the single currency as speculation increases that the Bank of England could be forced to restart its asset purchase program. Despite further increases in prices it would appear that the Bank has given up all pretence of targeting the inflation rate with calls increasing by the day for the Bank to stimulate the economy in the face of stalling growth.

Further calls from Adam Posen along with calls from business leaders appear to be building some momentum and today’s unemployment data could well add to these calls.

Expectations for August are for a rise in claims of 35k, down slightly from 37.1k, while the ILO unemployment rate is expected to stay at 7.9%. Average earnings are expected to increase slightly to 2.7%.

Mervyn King is also expected to be speaking this morning around 7:30am and he could well add to the recent sterling weakness.

In Europe ratings agency Moody’s finally pulled the trigger on the long awaited downgrades to French banks, downgrading Societe Generale and Credit Agricole, with Moody’s saying that it believes Soc Gen can absorb losses on Greek debt, however it leaves Credit Agricole on review for a further downgrade due to the current persistent fragility in bank financing markets. Surely it can only be a matter of time before BNP Paribas follows in their wake as the bank announces a restructuring plan to increase capital.

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In Switzerland producer prices for August are expected to reinforce the Swiss National Bank’s recent decision to institute a peg with expectations that they will come in negative at -1.1%, year on year, nearly double from July’s -0.6%.

In Europe the release of Eurozone industrial production data for July will give clues as to how well Q3 has started for the latest quarter, with expectations of a bounce back from Junes sharp 0.8% fall, with expectations of a rise of 1.5%, which in turn would push the year on year figure up from 2.6% to 4.6%.

In Japan industrial production for July was revised down slightly from 0.6% to 0.4% highlighting the continued difficulties the Japanese economy is having in recovering from the earthquake earlier this year.

Rumours and denials about French banks dictated trading on Tuesday. The Canadian dollar rallied alongside oil and the risk rally continued. JPY followed CAD as the market leader while GBP and AUD lagged. Reports on Japanese industrial production, Australia consumer confidence and Australian housing starts are upcoming. Latest Premium trades with 4 charts now up including US crude, gold, silver, Dow-30

French banking rumours were the top news of the session. A WSJ column cited a source saying France’s top banks were cut off from USD funding but this was quickly denied by banking officials and corroborated by MNI. EUR/USD was virtually unchanged on the day but the more positive reports helped to strengthen risk appetite.

Oil was a mover, gaining $1.69 to $89.87 and it traded at a six-week high of $90.52. Gold climbed $23 to $1834. Silver outperformed, gaining 2% to $41.02. The S&P 500 gained 0.9% to 1172.

The rally in commodities benefited the Canadian dollar and USD/CAD fell strongly for the second day. The medium term chart continues to point to USD gains and oil will need to close above $92 to create a sustained buying signal.

GBP was a notable underperformer and closed on the lows as the Bank of England’s Posen continued to drumbeat for further QE. Cable briefly fell below the July low of 1.5780 but a more sustained push lower will be needed to confirm the break.

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US economic data was low level but interesting for the long-term. The August budget deficit hit $134.2B compared to $90.5B for last August and $132B expected. The CBO and White House are now projecting a $1.3T deficit in the year ending Sept. 30, which is just $10B better than the year before.

US census numbers were troubling, albeit dated. In 2010, median household income fell 2.3% and the poverty rate climbed to 15.1% from 14.3%, despite the economy growing 3.3%.

On the day as a whole, there wasn’t much to takeaway. Different markets were sending different signals and none of the signals were strong.

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Asia-Pacific Preview

At 0030 GMT, Westpac will release Australian consumer confidence data. The prior report showed a 3.5% contraction. An hour later, Australian housing starts will look to build on a 3.1% increase in Q1; expectations are for a 2.1% q/q increase.

At 0430 GMT, Japan releases the second report on industrial production for July. Expectations are for no change from the preliminary report showing a 0.6% increase.. The Bank of Japan said last week that production will grow at a moderate pace in the fourth quarter.

Another report to watch will be Indian WPI inflation. The prior reading was 9.22% y/y and a similar figure us expected. Signs of a decelerating inflation will confirm that India is near the end of its rate-hiking cycle. This relates to one of Ashraf’s top themes – that growth in BRIC countries will not be strong enough to push up commodity prices.

In a session filled with rumours, denials & misinformation, one thing has become more acceptable is the notion of a Greek default. But will a Greek default be the catalyst for the next EURUSD leg down. Probably not. More likely, it would be a new development regarding a French bank or Italian sovereign bond yields. Meanwhile, all eyes are on Geithner's unusual trip ECOFIN Summit, where he is reported to push Germany into expanding the size of the European Financial Stability Fund. We are bringing back EURGBP, US Crude oil and Dow-futures to the Premium Trades. Subscribers click here: http://ashraflaidi.com/products/sub01/access/?a=493 NONsubscribers can click here: http://ashraflaidi.com/products/sub01/

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Italian bonds at center of attention; UK CPI at 3-month high, BoE’s Posen renews call for QE2. EUR/CHF near the 1.20 level. WSJ story of BNP Paribas no longer having access to funds is unsubstantiated. US Federal Budget are due later today.

Bank of England Monetary Policy Committee member Adam Posen renewed his calls for QE2 today when he said the central bank should “attack the longer-end of the gilt yield curve with an additional round of GBP 50bln of asset purchases to be made over the next 3 mths”. Posen said the said that with the global economic outlook worsening, the bank should "arguably" make even more asset purchases.

UK Aug inflation highest since May at +4.5% y/y from July’s 4.4% y/y; in line with expectations. Gains attributed to record gains in prices of clothing and footwear. UK Jul trade deficit rose to GBP8.92 bn from GBP 8.873bn in Jun

Last night saw the single currency pull back sharply from seven month lows against the US dollar and 10 year lows against the yen, after reports that Italy was in talks with China about possible investment opportunities. Later this morning Italy are also holding a 5 year debt auction of €3-4bn which given that bond yields have continued to rise since the resignation of ECB member Stark over the bond buying program will be a key indicator of investor attitude towards the worlds third largest bond issuer.

Australian business confidence for August nosedived from +2 in July to -8 in August suggesting that despite recent fairly robust economic data in recent days, business leaders don’t feel that confident about the global economy against a backdrop on economic conditions in Europe and the US.

The US dollar index slipped back from six month highs yesterday, however if recent comments by Dallas Fed President and FOMC dissenter Richard Fisher are anything to go by it could well be a brief pause, saying he believe that the bar for further easing remained very high and he would be unlikely to support it at the September meeting.

The New York session starts at 8:30 am ET with the Import Price index for August that is expected to show a decline to 12.5% from 14% on annual basis. At 10:00 am ET September IBD/TIPP Economic Optimism index is due and is seen higher at 37.5 from previous 35.8 and finally Federal Budget deficit at 2:00 pm ET should narrow to USD -126.5 bln in August from USD -129.4 bln in July

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The slump in the euro and risk appetite reversed after a report suggested China is preparing to invest in the embattled Italian bond market. On the day, AUD and USD lagged while CAD and JPY were top performers. No major headlines are expected in the Asia-Pacific session buy AUD may climb. Ashraf's Premium trades remain active for EURUSD, gold, CADJPY & USDJPY. while S&P500 hit all targets. EURJPY & silver were stopped out,

Late in Monday`s US session, the FT reported that China's investment fund sent a delegation to Italy in order to investigate buying significant amounts of Italian debt and invest in Italian companies.

EUR/USD jumped a full cent to 1.3680. The daily chart now shows an outside day bullish reversal that may fuel further gains and provide more lucrative entry points for those looking to sell rallies.

To us, the Italian/Chinese news doesn't justify such a large move but the market is heavily short EUR and it was a viable excuse to take profits. Further undermining the news is talk the same Chinese delegation toured several European countries in the past two weeks and also told the UK it is interested in a similar investment.

Earlier pressure on the euro sparked a brief fall below 1.35 on worries about Greece. It began to ebb after Germany's fin min said no country will leave the Eurozone. A source quoted in the WSJ also said Greece was likely to receive the upcoming aid tranche.

Diminished sovereign worries pressure precious metals. Gold fell as low as $1801 and closed down $42 to $1815. Silver fell even harder in percentage terms.

Today's trade from Ashraf on the S&P500 was near-perfect as the index fell just below the low end of the entry range (1237-1242) at 2 p.m. ET then easily hit all targets before the close as the S&P 500 closed up 0.7% to 1162.

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The Asia-Pacific calendar is quiet on Tuesday with Australian business confidence from National Australian Bank at 0130 GMT as the lone indicator. There is no consensus and the prior was -2.0.

Monday’s AUD trade was particularly interesting. The extent of the slump points to some type of large liquidation, rather than one driven by intermarket moves and macro news. Given this, we see the potential for a retracement in the day ahead.

Now that EURUSD has broken below our preliminary target of $1.37 communicated in our monthly cycle charts on Aug 5, things will become more complex for swing traders. Whipsaws shall become more frequent even as the downtrend appears intact. We bring you our latest MONTHLY & WEEKLY EURUSD CHARTS; Here are our latest Premium Trades

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German government explores consequences of a Greek default and the possibility of a Greece exit from the Eurozone. EURUSD rebounds from under $1.35; Italian Industrial production fell. FOMC member fisher speaks on monetary policy. Ashraf's Premium Trades will be be posted ahead of London Lunch.

Eurozone data continue to disappoint as Italian Industrial production fell 0.7% in July after dropping 0.8% a month earlier. On annual basis production fell 1.6% from 0.1% and worse than expected growth of 0.2%.

According to German magazine Der Spiegel, the German government is exploring consequences of a Greek default as well as the possibility of a Greece exit from the Eurozone. German experts believe such a situation would be manageable. This increases the credibility of the news that started to circulate on Friday that Greece is about to default. Until now, the German government showed a strong opposition towards the possibility of a Greek bankruptcy. However, over the weekend, Greek Prime Minister Papandreou approved new measures in order to avoid default and keep the euro.

In the event of a default by Greece, attention will be particularly focussed on the big three French banks in particular, with ratings agency Moody’s potentially priming themselves to pull the trigger on a ratings downgrade, as early as this week, after putting them on review in June.

G7 meeting ended with no objections to Japanese Finance minister Azumi’s intentions to take bold action should he consider yen moves excessive and disorderly. This could mean a higher chance of an intervention as BOJ, or Ministry of Finance to be precise, would not be internationally criticized for a unilateral action.

Earlier in Asia, The August minutes from the Bank of Japan rate meeting last week showed that policymakers were agreed on the need to increase the set of stimulus measures to show that they were serious about the need to loosen monetary policy to weaken the yen and help boost the economy. Business sentiment amongst large manufacturers also improved from -23.3 in the quarter for April/June at 10.3 for the latest quarter though concerns remained about the effect the strong yen was having on exports.

No data at the NY session.

Dallas Fed president Richard Fisher delivers a speech at the National Association of Business Economists in Dallas at 4:00 pm ET. The volatility could increase as Q&A session is expected.

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The crisis in Europe seems to have taken another step toward disaster as rumours and dissention among leaders push Greece toward the brink. The euro fell badly on Friday and continued to decline as markets opened for the week. Fridays CFTC report showed the market turning deeply bearish on the euro.

The early laggards on the week are the risk-driven AUD and NZD with EUR close behind. GBP is narrowly outperforming JPY and USD at the top of the chart. US stocks fell nearly 2% on Friday and futures are pointing to an additional 0.8% decline at the open.

A positive solution in Greece appears increasingly hopeless. Greeces future is a choice among various negative options; whether it be a restructuring within the eurozone or exit from the monetary union. Whats abundantly clear is that Greece cannot afford the political/social cost of a bailout from its neighbours, nor will it be possible to return to international borrowing markets.

Greek credit default swaps blew out on Friday on a rumour that officials will announce an exit from the Eurozone on the weekend. While this did not come to pass, a restructuring now appears to be a near-certainty with Greek CDS implying a 90% chance of default. Greeces economy cannot grow under the burden or austerity and it cannot afford to pay its debts without it.

The EUR charts tell the whole story. A clear breakdown is visible. Even with a bounce in the day or week ahead, its clear that the direction is down and that the trade will be to sell rallies.

Adding to the impossibility of finding a positive solution, European leaders appear increasingly divided. Finland and others continue to bicker over collateral but on Friday the market was hit with a shock as Bundesbank President and ECB governing council member Jurgen Stark announced his resignation. The official line is that he is leaving for personal reasons but a convincing amount of innuendo in the market points to a strong disagreement about Eurobonds as the culprit.

The market is no longer debating if Greece will default but what will happen when it does. A Bloomberg report on Saturday suggests three of Frances largest banks will have their credit ratings cut as soon as this week because of exposure to Greek sovereign debt. German leaders appear to be attempting to build a firewall around German banks. Greek leaders took further steps including a special property tax and used soothing words but the market has stopped listening.

CFTC Report

Fridays Commitment of Traders report showed the euro net plunge to -36,4K from +2.5K the previous week. Its the most bearish futures traders have been since Jan. 11 and they were rewarded as EUR fell sharply since the data was collected on Sept. 5. Interestingly, the data was collected the same day as the SNB announced the EUR/CHF peg. The net fell only from +9.3K to +7.5K. GBP is the only other currency held net short as the position fell to -13.2K from +0.4K. The declines from positive to negative in EUR and GBP are normally interpreted as sell signals. CAD longs may be poised for a similar switch as they fell to +2.1K from +13.9K. Yen longs fell from 32.8K from 41.1K. AUD and NZD longs were essentially flat.