Credit Agricole: What Greece means for major currencies? The negotiations resume on Saturday

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Sergey Golubev, 2015.06.27 20:16

Crédit Agricole for US Week Ahead: NFP, ISM, Factory Orders, Cons Conf, Housing (based on efxnews article)

We look for continued growth in May pending home sales, albeit at a slower pace of 0.6%. Pending sales of existing homes likely maintained its upward trajectory in May, albeit at a slower pace of 0.6%. As of April, pending sales, or signed contracts that have not closed, are up almost 10% so far this year. That pace is likely not sustainable although we do not expect a sharp retracement yet. Mortgage applications for purchase stabilized in May following sharp jumps in the prior two months, suggesting a slower pace of pending sales growth in May. Our projection for continued sales growth points to another rise in existing home sales (closings) in June. 

June consumer confidence likely edged higher to 98.0 from 95.4. The Conference Board consumer confidence index is expected to edge higher in June to 98.0 from 95.4. In the past four months the index has retreated from its post-recession high of 103.8 in January, hitting a low of 94.3 in April. Yet the slightly higher May index of 95.4 still stands close to pre-crisis averages. In line with our view that the unemployment rate will continue to fall this year with a steady pace of job growth, we expect confidence to revert back on its upward course. A recovery in consumer spirits has already been captured by the University of Michigan survey, which rose over 5 points in June. One risk to our scenario is sluggish wage gains, but so far we are seeing signs of a pickup in the near term. 

Construction spending likely slowed to a 0.4% increase in May following a 2.2% pop in April. May construction spending likely softened to a 0.4% rise after a 2.2% jump in April. The strength in the prior month reflected robust growth across private residential and non-residential as well as public construction. In May we expect residential spending (excluding improvements) to posted a softer increase given the reversal in housing starts. Private non-residential spending, which saw strong growth in March and April, likely moderated. Despite slower expected growth in May, our estimates are consistent with stronger residential investment and an improvement in structures spending in Q2. 

The ISM manufacturing PMI likely saw modest improvement in June, rising to 53.0 from 52.8. We look for a modest increase in the June ISM Manufacturing PMI of 0.2 percentage points to 53.0. The index bounced back smartly in May after running at a low of 51.5 for two straight months. Regional Fed surveys suggest only a small improvement this month. The June Philly Fed index, after adjustment to ISM weighting, firmed almost 2 points to a 6-month high, while the adjusted Empire State index slipped a touch but remained above its March/April lows. Our June projection of 53.0 would put the ISM index slightly above its Q1 average, indicating a small recovery in manufacturing activity in the second quarter.

June vehicle sales likely slowed roughly 2% to a 17.4 million unit rate after hitting 17.7 million units in May. We expect a modest slowing in June vehicle sales to a 17.4 million unit rate. Sales surged over 7% last month to 17.7 million units, so the June projection reflects a slight retracement. With gasoline prices on average remaining cheap compared to last June, the surge in popularity for utility and truck models is expected to hold. While the reversal suggests a more modest gain in June retail sales, it remains consistent with an acceleration in Q2 consumer spending to at least a 2.8% pace, up from 2.1% in the first quarter. 

We expect a 230K gain in June nonfarm payrolls with the unemployment rate falling back to 5.4%. We believe the labor market as a whole remained on a robust path of recovery in June. June nonfarm payrolls are expected to rise by 230K after rising a strong 280K in May. Jobless claims edged lower to 267K in the reporting week down from 273K in May, consistent with a solid payroll print and falling unemployment. The softer expected gain in June reflects slower growth in private service-sector jobs, which previously jumped 256K—the third sharpest increase in the post-crisis period. By contrast we look for some improvement in goods-producing payrolls, led by a robust rise in construction jobs. Manufacturing employment, which grew by 7K in May, likely saw a similar rise in June as regional Fed employment indicators indicated continued growth but no signal of a significant acceleration. Employment in the mining industries likely continued to contract though the stabilization in the oil and gas rig count decline suggests a slightly more modest drop than in May. To note, our June NFP projection relies on limited data at hand as we await the June ISM manufacturing, ADP employment and Conference Board confidence releases. We expect the unemployment rate to fall back to 5.4% in line with the declining trend in initial claims among other survey indicators. The labor force participation rate likely slipped back to 62.8%. Following a 0.3% pickup in May, average hourly earnings likely rose 0.2% which may push on-year growth down to +2.2% YoY. Finally, the average workweek is expected to be unchanged at 34.5 hours. 

Factory orders likely slipped 0.2% in May on a drop in durable goods orders. May factory orders are expected to fall 0.2% reflecting a 1.8% reported drop in durable goods orders. The May decline was driven by a plunge in aircraft orders; orders outside of transportation rose 0.5%. Orders for nondurables, the new data in the release, likely saw an increase in May in line with higher crude oil and commodity prices.

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Sergey Golubev, 2015.06.28 18:44

Morgan Stanley - EUR, JPY, GBP, AUD, CAD: Outlooks For The Coming Week (based on efxnews article)

"EUR: Markets Still Waiting for Greece. Bearish.

We remain bearish EUR over the medium term but believe that short term trading will be dominated by market risk appetite. Should European equities sell off as concerns about Greece rise, European investors would need to buy back their short EUR currency hedges, supporting the currency. That said, Greece remains a major risk and tensions are escalating, which could drive markets to increase the risk premia in the price of EUR, weighing on the currency.

JPY: Flows Keep JPY Supported. Bullish.

We believe JPY is likely to be one of the outperformers over the coming months and treat it like our quasi-dollar. Flow data suggests that Japanese investors continue to be net sellers of foreign bonds, driven by the higher volatility and thus this prevents the JPY weakening further. The key risk over the coming weeks is market’s risk appetite. A deterioration from negative news from Greece could be a further support for the JPY. We like medium term EURJPY short positions.

GBP: Strong Wages Keep GBP Supported. Neutral.

GBPUSD is being mainly driven by rate expectations and should the recent strong wage data be sustained then this should bring forward rate expectations. This week the BoE’s Weale suggested that he could vote for a rate hike as early as August. We believe there is potential for GBPUSD to reach 1.60 but prefer buying on the crosses, in particular against the NOK where an accommodative central bank highlights the divergences between the two currencies.

CAD: Trades with Oil. Bearish.  

We believe CAD is likely to weaken over the medium term in line with other commodity currencies and still observe a strong correlation with oil. The upcoming CPI print will be important, given prices have been on a down trend, and we believe the Bank of Canada could generally be too optimistic. Markets are pricing in little chance of a cut, and should this increase, it could weaken CAD in an environment of broader USD strength.

AUD: External and Domestic Pressures. Bearish.

We expect the AUDUSD uptrend to remain limited and would sell on rebounds. The outlook on the economy remains weak and now that iron ore prices are expected to weaken over the coming months from increased supply, there could be a renewed story to support the next leg lower in the AUD. Indeed, the RBA needs to remain dovish for our near term story to hold so it is a risk if the governor sounds less dovish than markets have come to rely on. 0.76 is a key support level."

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Sergey Golubev, 2015.06.28 21:25

COT report by Scotiabank: Takeaways On USD, EUR, AUD, & Other Majors (based on efxnews article)

EUR sentiment deteriorated for the first week in four, the net short widening $1.3bn to $13.9bn. Its w/w shift was the result of a paring back in both long and short positions, highlighting a broader trend of withdrawal in traders’ participation as a result of elevated uncertainty and the binary nature of Greek risk.

Investors pared back JPY risk in a manner similar to that observed in EUR, albeit to a greater degree with a $2.7bn decline in gross longs and $2.0bn decline in gross shorts. The pattern suggests that traders await a greater degree of certainty in the face of binary Greek risk.

CAD sentiment has deteriorated for the third week in four, the net short widening $0.4bn to $1.4bn on the back of a decline in gross longs—falling to their lowest levels since June 2013.

AUD sentiment is also bearish, albeit modestly so with a net short at $0.7bn. Investors in appear cautious in adding to risk in either CAD or AUD, waiting for a breakout of their relatively narrow ranges.

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Sergey Golubev, 2015.06.29 13:46

Credit Agricole - 'A Referendum On EUR': What's Next For Greece? (based on efxnews article)

"The upcoming referendum is in fact a referendum on the Greek membership in the Eurozone. Indeed, if the people of Greece turn down the reform proposal, the country will end up with no creditor funding (and no ECB support for its banks). A default should follow and, with Greece still cut off from the global capital markets and with no sovereign default resolution mechanism in place in the Eurozone, the government will be forced to raid domestic deposits or issue IOUs. The latter will be in violation of the EZ treaties and mean Greece should ultimately leave the EUR."

"Needless to say, social tensions should escalate and political uncertainty soar, pushing the economy closer to the precipice."

"Given the gravity of the decision, we still think the people of Greece will choose to stay in the EUR and agree to the creditors' reform proposal on July 5."