Intraday Market Thoughts Archives

Another rout hit markets on Friday with concerns about Greece and Italy outweighing positive US economic data. CAD was the worst performer, followed by EUR; the yen and Swiss franc were the top performers. Fridays CFTC data showed euro longs cut by 41%.

Moodys sent a shiver through markets Friday by placing 16 Italian banks and two government-related financial institutions on review for possible downgrade. Another 13 banks had their outlook cut to negative from stable. This comes on the heels of Moodys announcement last week of a review of Italys public debt.

Greece continues to be a top story. The ECBs Stark said the latest bailout deal is the nations last chance. The market is also growing increasingly concerned about votes on Greeces austerity package on Tuesday. The governing majority has thinned to 154 votes after a defection; 151 votes are needed.

The S&P 500 closed down 1.2% to 1268. The market closed virtually at the days lows but above Fridays low and critically -- above the 200-day moving average. Gold fell $17 to $1503, oil was flat. The bond market continues to flash warning signals. We must stress that its likely that a major round of risk aversion is likely to show up in bonds first. Ten-year Treasury yields fell to 2.87% -- the lowest since the credit crisis. Two-years are near record territory at 0.33% and T-Bills are down to 0.007%.

Positive US economic data was cast aside by the market. The final report on Q1 GDP was revised to +1.9% from 1.8%. May durable goods orders at +1.9% were above the +1.6% expected. The key line on non-defense capital goods ex-aircraft rose 1.6% compared to the +1.0% expected. More importantly, all the priors were revised much higher with non-def ex-air to -0.8% from -2.3%.

On the week, CHF was the best performer, followed by USD. Sterling lagged followed by AUD. Cable closed out the week below 1.60 for the first time since February due to weak CBI data, dovish BOE minutes and turmoil on the continent.

The weekly CFTC data showed dollar shorts trimmed against everything but JPY. Euro longs were cut to 29.7K from 49.8K. Positions in all the commodity currencies were cut back, especially in CAD which fell to +2.2K from +18.8K. The position in GBP switched from positive to negative, falling by 22.5K to -11.4K. The yen net long position increased to 32.6K from 24.7K. The data is through Tuesdays close.

Adam Buttom

Ashraf's TV appearances on CNBC & BNN discussing the IEA's decision to release Strategic Petroleum Reserves, the FX motivations and relative commodity measures.

CNBC: http://tinyurl.com/6ahk9v4

BNN: http://watch.bnn.ca/#clip490502

In order to understand the SPR release of 60 million barrels, we must go back to the November G20 meeting when Asia/Latam Emerging Markets protested against the Fed's November launch of QE2, dubbing it as beggar-they-neighbour USD depreciation. Click here for more:

http://ashraflaidi.com/articles/spr-the-new-global-qe.asp

USD is mixed since London open. It is unchanged against EUR, up against CAD and weaker against the rest of the majors. German data improves slightly. Focus turns to US May Durable Goods Orders and final release of Q1 GDP.

EUR is consolidating gains from yesterdays New York rally after the news that Greek austerity package has been agreed upon. While the agreement is an important first step, keep in mind that this agreement has to be ratified by the parliament next week. By coincidence, the ratification process should take place during the fourth national strike this year which will last for two full days. The opposition to the austerity measures is significant so the possibility of political disruptions exists and should something unexpected occur, the common currency would likely drop.

German data came out positive this morning when German Ifo Business Climate in June rose to 114.5 from previous 114.3 and Current Assessment rose to 123.3 from 121.5.

BOE Governor King focused in his speech on Greece and needed Bank Capital reforms. The governor said that UK exposure to Greece is remarkably small and that the aim should be to make the financial system more resilient by imposing new Capital rules as it is impossible to prevent financial crises. As Mr. King did not speak directly about the UK economy, the GBP selling that often occurs during his speeches did not materialize.

Todays New York session has only one significant data release. US Durable Goods Orders for May are due at 8:30 am ET and are expected to improve significantly to 1% from previous drop to -3.6%. Core orders are expected to improve to 1% from previous -1.6%. Final release of Q1 GDP is expected at 1.9% but unless we see a major revision, reaction is likely to be muted as traders will find new information on goods orders more important.

Here's Ashraf's CNBC APPEARANCE regarding the SPR release http://video.cnbc.com/gallery/?video=3000029548

Euro rebounds on IFO survey & agreement on Greece 5 year austerity plan, sterling in focus as Mervyn King speaks, US GDP final revision .

The euro's rebound passed an early test this morning as Germany's June IFO business sentiment survey rose to 114.5 (exp 113.5) from May's 114.2. Current Assessment index rose to 123.3 (exp 121.0) from 121.4, Business Expectations index slipped to 106.3 (exp 106.5) from 107.4

Putting aside the fact that the budget still needs to be passed and then implemented, markets will be hoping that the release of June German Ifo business sentiment and business expectations data is an improvement on yesterdays disappointing PMI data which saw risk appetite take a knock and markets slip back and close lower.

GBP sustains more damage yesterday, particularly against the US dollar and Swiss franc after CBI retail sales for June plummeted from 13 in May to -2. This reinforced the perception, which gained traction earlier this week, that UK interest rates were now unlikely to rise before 2012. This morning the governor of the Bank of England is holding a press conference and traditionally he does tend to talk the pound lower, though given that the Bank is releasing its Financial Stability Report, Mr King may prefer to focus on the risks of the crisis in the euro zone and the impact a further deterioration could have on events here in the UK.

Another positive factor that could well boost risk appetite were reported comments by Chinese premier Wen Jiabao that inflation appeared to be under control and assuaging concerns of further imminent interest rate rises from the Peoples Bank of China.

Later on, just before US markets open US Q1 GDP final revision is expected to come in unchanged at 1.8%, reinforcing the Feds downbeat message of Wednesday night.

WATCH ASHRAF ON CNBC today on CNBC's Squawk Box from 6:30 am EST, 10:30 GMT

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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).

Our LATEST TRADES on EURUSD, EURJPY, S&P500, GOLD & US Crude are out with 6 Intermarket technical charts . Click here to to become Premium Member: http://ashraflaidi.com/products/sub01/

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Ashraf

EURUSD rises off key support of 1.4115 on news that Greece secures IMF/EU deal, which will be finalized on Friday, 1.4110-15 is the Trendline support extending from May 23 low thru the June 16. EURUSD will continue hovering between $1.40 and 1.45 as it awaits these key dates (see below).

Our LATEST TRADES on EURUSD, EURJPY, S&P500, GOLD & US Crude are out with 6 Intermarket technical charts . Click here to to become Premium Member: http://ashraflaidi.com/products/sub01/

The key dates for EUrozone are the following: June 23-24 EU Summit

June 28 or 30: Greek parliament vote on Medium Term Plan (austerity measures totalling E28.6bn)

July 3 extra-ordinary Eurogroup meeting to disburse E12bn to Greece.

Summarising the FOMC Decision

1. FOMC sticks with "exceptionally low levels for the fed funds rate" to last for "extended period".

2. Confirmed $600B QE2 ends in late June.

3. Continue reinvestments with 7 yr Treasuries buying operations per month.

4. FOMC said recovery "somewhat more slowly than expected" but likely due to temp factors such as Japan, higher food/energy prices.

5. FOMC downgraded US growth estimates: 2011 central tendency now 2.8% from previous 3.2%. 2011 unemp rate 8.8% from prev 8.5%, 2011 core PCE prices

seen 1.5%-1.8%.

6) Bernanke noted "extended period" could at last at least 2-3 meetings

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Ashraf

No change in sentiment took place as London traders continue to buy the greenback. No mention of QE3 in Bernankes press conference sent equities and riskier assets lower and helped to underpin the greenback. Fundamental data from Europe disappoint. Onto US housing data.

Data from Europe mostly disappointed today when French, German and Euro zone manufacturing PMI came short of expectations. German manufacturing PMI decreased in June to 54.9 from previous 57.7. Euro zone Manufacturing PMI slowed to 52.0 from 54.6.

As manufacturing PMI slows down in most developed countries around the world, hinting the possibility of another recession, it comes as a weak consolation that German services PMI increased to 58.3 from 56.1. Euro zone services PMI also disappointed when it printed 54.2 from previous 56.0.

CBI reported sales in the UK dropped sharply from 18 to -2 which is the worst reading since June 2010. The sterling lost close to 300 points over the past two days and currently sits at the psychological level 1.60. Clear break and daily close below this level would open way to 1.54.

The common currency has been sliding against most trading partners was further hit after Finnish PM said that risk of serious financial crisis and recession was very high and Slovakian PM announced that during a phone call, Greek PM said he cannot guarantee reforms will find support in Greek parliament. The situation continues to be serious as evidenced by further increase in price of 5 year Greed CDS. This CDS trades at 2025 bps, up 138 bps just today.

New York session starts at 8:30 am ET with Unemployment Claims that are expected unchanged at 414K. At 10:00 am ET New Home Sales May are expected to decrease slightly after three months of gains. Analysts predict 311K from previous reading of 323K. As long as we do not see a serious deterioration, USD should continue to appreciate.

Greek cabinet passes austerity budget, Euro awaits flash PMI data after disappointing Chinese PMI, US dollar firms up after FOMC and Sterling pressured near key supports as rate rise expectations recede.

For once markets could well be dominated by factors other then Greece over the next couple of days after the Greek cabinet yesterday passed the new austerity budget in preparation for putting before parliament next Tuesday.

Overnight we saw that Chinese HSBC flash PMI slid back coming in at 50.1, still in expansion territory, but down from Mays 51.1, raising fears of slowing growth in one of the biggest drivers of emerging market demand and growth in the global economy. In Europe this morning we should see if flash June PMI data in Germany and the Euro zone is also showing similar signs of stress, with expectations of a slow down in both manufacturing and services in both regions, with reductions across the board from the May figures. German manufacturing PMI, traditionally one of the more robust measures is expected to slip back to 57, from 57.7, while the euro zone equivalent is expected to slide from 54.6 to 53.8.

Fed Chairman Bernanke expressed concerns about the slow down in the US economy with the Fed following in the footsteps of the IMF earlier this month and downgrading its growth forecasts from a range of 3.1-3.3% to 2.75%-2.9%. The Fed also upgraded its core PCE inflation forecast from 1.3%-1.6% to 1.5%-1.8% and making the likelihood of the possibility of further stimulus measures of QE3 less likely in the short term. The Fed did say that it would keep the stimulus at current levels while it kept a watching brief over the economy with Fridays final revision of Q1 GDP a key indicator.

GBP remains on the downfoot over the past 24 hours as it nears a number of key supports against the US dollar. The unexpectedly dovish minutes really shouldnt have come as too much of a surprise, given Andrew Sentences recent departure, however Fishers comments earlier this week might be warranted if downside risks materialised spooked the markets and pushed out estimates of the next rise in interest rates into next year.

US jobless claims are due out later this afternoon and will have particular resonance given the Feds action last night in pushing up its unemployment rate estimate from 8.4% to 8.6% to 8.6% to 8.9%.

**** OUR PREMIUM SERVICE trades hit their long targets in EURUSD. EURJPY, S&P500, FTSE-100, SILVER (partial), Gold (partial) and US Crude (partial). We will update the trades for Thursday later this morning.

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The Fed is inclined to stay the course, ending Q2 at the end of the month and reinvesting expiring securities, according to the FOMC statement and press conference. The economic assessment was downgraded and there was no hint at QE3, leading to risk aversion and a dollar rally. Look to the HSBC China PMI to help set the tone in Asia-Pacific trading.

In the hours leading up to the FOMC decision, jittery markets built in a concession for the possibility of further Fed stimulus. PIMCOs Bill Gross spurred the trade with a tweet that said QE3 could be unveiled at Jackson Hole in August. The market moves gave us a sneak preview of what QE3 might look like; gold surged, stocks gained and the dollar was weak, especially against risk currencies. When the statement failed to offer any hint at QE3, the moves unwound. Further moves (risk aversion) were a result of the Fed downgraded its economic assessment. Some downgrade was expected but there was also the possibility of the Fed presenting some optimism. The S&P 500 closed at the days low down 0.65% to 1287 in the first decline after four days of gains.

We see a compelling case to be made for longer-term USD/JPY shorts. In the coming months the market will pressure the Fed to embark on QE3 by unloading stocks. If the Fed holds its ground, the dollar will gain broadly on risk aversion but lose ground against JPY and CHF. If/when the Fed bows to the pressure, a dollar rout will commence. AUD and NZD will be the biggest winners but JPY and CHF will also benefit. We prefer using JPY over CHF here because a large portion of CHF inflows have been due to investors seeking a safe haven from the crisis in Greece.

An early look at CHINESE INDUSTRIAL PRODUCTION comes with the June HSBC MANUFACTURING PMI. This indicator has gained increasing clout in the past year. A soft reading here could collide with the negative post-FOMC sentiment to drive an ugly risk off trade on Thursday. The May level of 51.6 was a 10-month low; there is no consensus estimate but we suspect the market is priced for a slight improvement to around 51.9.

Now you know why our London morning IMT was titled "Sterling Fears Upcoming BoE Minutes". Indeed, the minutes did show one less hawk (see below). USD holding steady. Euro zone industrial orders disappointed. Critically important FOMC statement is later on today.

GBP was under pressure since London traders got to their desks. After the MPC meeting minutes were released, the Sterling dropped sharply. Vote was 7-2 from previous 6-3 (7 members voted for holding rates steady and 2 for rate increase). The minutes revealed a discussion about the possibility of QE extension should downside risk materialize and Adam Posen voted for GBP 50 bln increase in Asset Purchase Facility to GBP 250 bln. Recent QE comments and overall dovish stance would indicate that BoE will not be raising rates in the near future.

Other news from this morning include Swiss ZEW Economic Expectation index for June that dropped to -24.3 from previous -11.5 and Euro zone April Industrial Orders that increased to 0.7% from previous -1.5% but still came short of 1.1% expected.

The New York session will be all about FOMC. The rate decision and statement are both due at 12:30 pm ET and the press conference will start at 2:15 pm ET. The fed funds rate will stay between 0 and 0.25% and the highlight of the day will be the press conference. Traders can expect a significant volatility around these times.

The Fed will acknowledge slowing of the economy and deteriorating fundamentals. The job market has worsened with unemployment ticking back up, yet consumer inflation has been increasing steadily since November 2010. However, at this point additional round of QE is not probable. The Fed is likely to keep the main interest rate unchanged for extended period and to continue to reinvest maturing securities as not to shrink its balance sheet.

If there are no hints of QE3, equity markets will be disappointed and risk aversion will increase as there will not be any expectation of an additional liquidity injections to the financial markets. Falling equities and other types of riskier assets combined with ongoing uncertainty in Euro zone should support the USD over the near term. Should QE3 be hinted, that would be a different case entirely

Bank of England minutes expect to show a more dovish tone, after Fisher comments, Greece survives no confidence vote, with austerity vote next, FOMC meeting due

The monetary policy committee of the Bank of England is expected to have a slightly more dovish outlook this month after the departure of Andrew Sentance in May, with the vote count changing to a 7-2 split for holding rates. The remaining two hawks are expected to be Spencer Dale, the Banks Chief Economist and Martin Weale who appears to have picked up the mantle that Mr Sentance put down. New member Ben Broadbent is not expected to make too many waves at his first meeting, and given Paul Fishers comments yesterday about the likelihood of further QE there is the possibility of a slightly more dovish outlook.

The pound has already slipped back in the last 24 hours and could face further weakness in the event of a dovish statement.

Last nights Greece confidence vote was a classic case of buy the rumour, sell the fact as the euro spiked higher to 1.4435 and then slipped back to 1.4360 in about two minutes. The margin was 155/129 in favour of the government, however it needs to be remembered that this vote is one obstacle amongst many as the markets look ahead to next week's austerity budget vote on the 28th June. Given the scenes outside the Greek parliament after last nights vote, one shouldnt assume that a passing of the bill will be a given.

The single currency also gained some support from a Chinese statement that they remained willing to help boost economic growth in Europe.

A statement by ratings agency Fitch that stated that any type of debt restructuring, voluntary or not, would be treated as a credit event, was shrugged off by the single currency as it continued its squeeze higher.

In economic data out for April, Euro zone industrial orders are expected to recover from their 1.5% March decline, to rise by 1% month on month.

Later today we have the latest FOMC meeting where we will get the latest growth forecasts for the US economy, and Bernankes thoughts on a post QE2 world.

Greeces Socialist government survived a crucial confidence vote, paving the way for the latest round of aid and confirming market suspicions. The euro and stocks rallied strongly in anticipation of a positive vote but the initial post-vote reaction was to sell EUR. The remainder of the Asia-Pacific session is quiet.

Greek politicians voted along party lines with all 155 members of the government supporting more than the 151 needed. The market appeared to buy the rumour and sell the fact as EUR/USD fell 40 pips after the results were announced. The market sniffed out the positive vote ahead of time, sending EUR/USD up more than 100 pips to a high of 1.4433. The stock market also benefited with the S&P 500 rallying 1.3% to 1295.

PREMIUM SUBSCRIBERS SAW LAST THURSDAY (5 days before the Greek Confidence Vote) how both these rallies were forecast by Ashraf late last week and the trades have hit their ultimate targets.

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Greece appears to be on its way to receiving the next tranche of international aid but risks remain. Next week Greece votes on a five-year austerity package and there will be another confidence vote before July 4. Looking out in the long term, IMF leader Lipsky said the situation is exceedingly difficult but has a reasonable chance of success if fully implemented. Thats not exactly a ringing endorsement. The market will also be watching for any escalation in street protests.

The bulk of trading on Tuesday was related to Greece but US housing also had an impact. Existing home sales fell 3.8% to 4.81 million, fractionally better than the 4.80 million expected. The Fed began its two-day meeting with no change in rates expected on Wednesday.

Wednesdays Asia-Pacific session features second-tier data on New Zealands current account and credit card spending. There are key reports until 0830 GMT and the Bank of Englands MPC minutes.

EUR ignores both disappointing German and EZ Data, BoEs Fisher dovish remarks, UK data slightly better then expected. Canadian Retail Sales Mixed, US housing data next.

USD continues to trade with a weak tone this morning not too far from yesterdays NY close. Euro moved lower after the German ZEW index for June dropped sharply to -9.0 (-1.7 expected) from previous 3.1. The economic sentiment has been declining for four straight months and turned negative after seven months of positive results. The severity of the decline is highlighted by the fact that this is the worst reading since January 2009. Ashraf's analysis told Twitter followers to FADE THE POOR ZEW DATA & stick with EURUSD longs at 1.4320-30s to target 1.44. We are now at 1.4390.

The Ezone Economic Sentiment showed similar results. The index printed -5.9 from previous 13.6 which is the first negative reading since March 2009. Despite these disappointing releases, the common currency has recovered its losses and trades at pre announcement levels.

As warned yesterday, the BOEs MPC member Paul Fisher pushed GBPUSD lower with his dovish remarks after London open. Mr. Fisher sees UK outlook as uncertain; sees risks from both inflation and weak growth and most importantly would consider more QE should CPI sink into deflation mid term.

Slightly better UK data helped GBP to recover its earlier losses after Public Sector Net Borrowing in May reached GBP 15.2B vs. GBP 16.1B expected and CBI Industrial Order Expectations reached 1 vs. -5 expected. Todays print is only second positive print since July 2008 and prints over 0 should indicate expectation of an increasing order volume.

New York session kicked off at 8:30 am ET with Canadian April Retail Sales +0.3% from -0.1%,with ex autos flat from -0.2% vs exp +0.3. expect the weakest print in six months that would show a decrease to 4.82M units from previous 5.05M.

US Existing Home Sales for May are due at 10:00 am ET. Analysts expect the weakest print in six months that would show a decrease to 4.82M units from previous 5.05M.

The important Greek confidence vote is expected to shake markets at 21:00 GMT. Media report that positive vote is likely which should underpin riskier assets.

If you are SUBSCRIBER to our PREMIUM INTERMARKET INSIGHTS, you would have heeded our long EURUSD calls from Thursday past 1.4380s as well as our latest upside targets in S&P500 and oil.

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Euro shrugs disappointing June ZEW survey at -9.0, vs. exp -1.3 from May's 3.1 (worst since Jan 2009). But EURUSD fundamentals remain in line with our Thursday longs, which coincided with the bottom of the current cycle. We have added daily & weekly OIL CHARTS to our premium piece as well as adjusted our positions in EURUSD, EURJPY, FTSE-100, S&P500, Gold & Silver.

As Tuesday's Greek Parliament vote nears and Wednesday's FOMC decision looms, traders remain noncommittal in their risk positioning. FX, equity, commodity and bond players are aware that sentiment could turn on a dime, depending on the Greece decision (Tues) and the market reaction to Bernanke's post-FOMC press conference (Wed).

Greek PM Papandreou and his Socialist government face a confidence vote in Parliament Tuesday. If the government survives the vote, the chances of the Medium Term Plan (austerity measures) being passed on June 28 will grow considerably. But Greece must first receive the next loan installment from the IMF, EC & ECB.

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Ashraf Laidi

UK Public sector borrowing expected to rise, RBA minutes, German ZEW economic sentiment and Greece no confidence vote all point to a volatile today. Fitch warns Greece and US on ratings outlook.

Given the recent focus on the single currency and Greeces woes the markets focus could well shift back towards the UK this morning and the pound as public sector borrowing for May is expected to show the continuing challenges faced by the UK government in getting public spending under control. The recent austerity measures introduced by the coalition government have taken some of the heat off the UKs own fiscal problems but after Aprils poor number the focus has shifted marginally back towards the Chancellors ambitious deficit reduction targets. Aprils numbers came in at a record high for that month of 7.7bn and it seems likely that Mays will probably be worse with expectations of 16.5bn.

GBP has not fared as well as it might have done, given the problems in Europe, and another miss here could well ratchet up the pressure ahead of tomorrows Bank of England minutes. GBPUSD awaits a speech from noted BoE dove Paul Fisher at 8:00 am GMT, which could potentially BOOST EURGBP.

This mornings release of the latest RBA minutes for June showed that the central bank remained in no hurry to raise interest rates on the basis that the recent data had not given them any reason to do so, and citing concerns with respect to the global economy and the sovereign debt crisis. The bank did note that the risks for interest rates remained tilted towards the upside from their present levels of 4.75%. The Australian dollar continues to find support between 1.0470 and 1.0500.

With the focus remaining on the problems in Greece, extra attention will be on German and Eurozone ZEW economic sentiment for June, with expectations for the German figure being pretty low with a figure of -3 being touted, a decline from Mays 3.1, while the Eurozone figure is expected to decline from 13.6 to 6.1. Todays main focus will be the Greece no confidence vote which is due late tonight and the vote looks evenly balanced with markets expecting the Greek Prime Minister to scrape through, just. Soon afterwards the vote on the austerity package will then take place.

With EU leaders continuing to make soothing noises with respect to a solution for Greece, the single currency has continued to find support above the 1.4150 level and 100 day MA.

Ratings agency Fitch also increased the pressure overnight warning that even a voluntary restructuring of Greek debt would be considered a credit event, and rendering the recent compromise agreed by EU leaders completely hollow. At the same time the agency warned that a failure to raise the US debt ceiling would also trigger a ratings downgrade, however they such an action would be avoided and the ceiling to be raised.

US existing home sales for May are expected later this afternoon ahead of that start of the latest FOMC meeting.

All eyes remain on Greece in the forex market; overall moves were small Monday as the market prepares for a razor-thin confidence vote on Tuesday. The RBA minutes are a highlight of the Asia-Pacific session.

Sentiment was generally positive Monday after Fin Min Schauble said Germany was prepared to increase the EFSF to 440B and debt guarantees to 780B.

S&P 500 gained 05% to 1278. It was the third consecutive day of gains following the large decline on Wednesday. Stocks breached Fridays high but were unable to close above that 1280 level. The EUR/USD chart is similar but unable to break Fridays intraday high of 1.4339. Look for these two charts to confirm each other in the day ahead.

The market is looking toward a confidence vote in Greeces parliament on Tuesday night. PM Papandreou has 155 of 300 seats. A FAILURE OR DELAY WOULD BE A LARGE EUR NEGATIVE but if not this may be the final hurdle for the Greek situation to return to some stability (EUR positive). Ashraf has so far called the EUR rally beautifully, establishing longs around 1.41. For targets and trades, see: http://ashraflaidi.com/products/sub01/access/?a=442

Asia-Pacific Preview

The RBA releases the minutes of the June 7 decision at 0130 GMT. The Aussie dollar fell sharply after the decision, which maintained rates at 4.75% and said the current mildly restrictive stance of monetary policy remained appropriate. AUD later rebounded on June 15 when Stevens said rates will need to rise at some point. Very little tightening is priced in for the year ahead so there is a better scope for an AUD rally here. Unfortunately, the RBA are some of the most opaque among large central banks so there may be little to digest here.

At 0430, Japan releases the all industry activity index for April. It is expected to rise 1.8% m/m after a quake-driven 6.3% decline in March. The Japanese government upgraded its economic assessment on Monday, noting signs of an improvement in production capacity. This data captures a time period that was weak and even if the data falls short of expectations, look for market moves to be quickly reversed as the market is looking ahead.

During the Asian session, the greenback was able to recover a portion of its losses from Friday. London sees only a slight change in prices with the USD trading off its highs. Greek CDS continue to rise despite latest efforts. AUD could see support on Russian central bank diversification.

News from the EZ from this morning included German PPI for May that came out unchanged and reached 6.1% y/y and EZ Current Account deficit for April that widened to EUR 5.1B from previous EUR 3B.

The Greek debt saga continues as the decision on the next tranche of the aid will be contingent on Greece meeting all reform plans and austerity measures. Early July will bring voting whether the next tranche will be released. Markets do not seem to be too impressed with the latest developments as the Greek 5 year credit default swap continues to rise and is up 128 bps today.

AUD could be supported in the short term by the news that the Russian central bank will diversify about five billion of its USD reserves into the AUD. The support could be only psychological as this round of diversification should be completed over three to six months.

As there are no economic data releases due throughout the New York session today, we can expect that trading will be largely determined by three factors:

1. New developments in EZ debt crisis

2. Awaiting Wednesdays FOMC statement

3. Technicals

1. Announcement between French and German leaders last week that an agreement on financial aid for Greece has been reached sent EURUSD almost 300 points higher. If no new disturbing developments occur, euro should be underpinned in near term with a slight upside bias.

2. FOMC starts a meeting on Tuesday June 21st that will culminate on Wednesday by a statement that will shed light not only on the end of QE2 but also on the possibility of QE3 in any form. Investors will look for an assessment of the current situation and answers if the recent worsening of economic data is only temporary set back in underlying recovery or a beginning of another recession.

3. Technicals that traders should pay attention to:

GBPUSD 6210-6220 zone: resistance given by previous lows and matching 38.2% fib. ret. at 6216

NZDUSD 8110-8120 zone: strong resistance given by high from beginning of May and multiple lows throughout June. 61.2% fib. ret at 8120.

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Greek government begins budget debate, Moodys puts Italy on notice for a downgrade, IMF cuts US growth forecast

If problems in Greece werent enough for investors to digest then a couple of events on Friday wont have exactly helped with Moodys putting Italy on notice of a sovereign downgrade while the IMF cut its 2011 growth forecast for the US economy from 2.8% to 2.5%.

Over the weekend, there has been talk of European ministers mulling withholding half of the next 12bn aid tranche as they seek to defer the day of reckoning and keep Greece solvent while Greek ministers look to pass an austerity budget of 78bn in the face of massive voter discontent. The vote is expected to be held tomorrow.

German Chancellor Angela Merkel and French President Nicolas Sarkozys pledge to defend the euro whatever the cost may have brought the single currency some respite late on Friday, but the fact remains that the cost maybe too high for German taxpayers to bear, as they tire of having to bailout the periphery.

Eurozone producer prices for May are expected to slip back slightly from Aprils 1% rise, increasing by 0.1%, while the year on year figure is expected to decline to 6.3% from 6.4%.

The IMF downgraded its growth forecast for the US economy for 2011 from 2.8% to 2.5%, citing higher commodity prices as well as bad weather in the first quarter and weak housing market. Given that the final reading of US Q1 growth is due this Friday, that particular news item was particularly unwelcome. This weeks FOMC meeting is unlikely to see any change in US monetary policy as the expiry of QE2 looms.

GBP edged up after UK property market website Rightmove scaled back earlier predictions for a steep fall in house prices for the second half of the year. Rightmove said asking prices rose 0.6% in June after a 1.3% rise in May.

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The latest from Greece is that PM Papandreou has urged parliament to back his new government in Tuesdays vote of confidence, warning that the country "will quickly run out of funds" if it is unable to draw down a E12bn loan tranche expected in July. Euro holds footing above 1.42, in line with Fridays trading outlook from the latest Premium piece. We introduced the euros 1-month volatility chart and how to apply it for EURUSD spot.

The other hard test facing Papandreous Socialists is a second parliamentary vote due on June 28 to approve medium the latest term austerity package in order for the next tranche of the current EU-IMF loan to be disbursed, the FT says.

Markets shrugged Moody's late Friday announcement to review Italy. Moody's placed Italy's Aa2 rating on review for a potential downgrade and US consumer sentiment declined on Friday. The news cut into the earlier optimism about an agreement to bail out Greece.

EUR/USD closed the week above 1.43 after falling into the low 1.41s prior to the Greek agreement. US Stocks hung on to a small gain and closed higher for the week after a six-week losing streak. NZD and EUR were the top performers while USD and CHF lagged. Oil fell to a four-month low and precious metals rallied.

The negative sentiment generated by the Moody's review was not nearly enough to overwhelm the EUR relief rally as the crisis in Greece appears to be subsiding for the moment. Economic data CONTINUES TO POINT TO A SLOWING US ECONOMY. The U Mich consumer sentiment survey fell to 71.8 in June compared to the 74.0 expected. The NYT also reported the Goldman, Merrill and BoA are planning layoffs. The IMF damaged confidence with a report on the rising risks to the global economy.

MNI FX Bullets reports that Fitch Ratings expects the NZs Christchurch earthquake to impact Australia's major non-life insurers but says costs could be manageable due to the protection from its reinsurance program and NZ Earthquake Commission.

Friday's CFTC report showed EUR specs trimming positions (but only by 5%) and JPY longs increasing. The USD is held short against every major currency.

The title of our latest Premium Piece: "Euro Confirms, 1 Month Volatility Look"

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