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Press review

Sergey Golubev, 2015.07.05 07:49

Forex Weekly Outlook July 6-10 (based on forexcrunch article)

Greece has been left front and center, with safe haven currencies riding higher and commodity currencies lower. The climax is still ahead of us. The week commences with the Greek referendum but there are other important events as well: US ISM Non-Manufacturing PMI, the FOMC Meeting Minutes, rate decisions in Australia and the UK and more. These are the major Forex events for the coming week. Join us as we explore these main market-movers.

The Greek crisis has dominated the news. The situation deteriorated as talks broke down. Banks are closed, the country failed to pay the IMF and all eyes are now on the referendum on Sunday, where polls show a close race. However, this is far from being the end of the story, especially as we learned that the IMF supports debt restructuring. While Greece is only 2% of the euro-zone economies, the political implications are huge. For the euro, the reaction was mixed: a Sunday gap was followed by a rally (for various reasons), but this was eventually eroded.

Elsewhere, the US Non-Farm  Payrolls showed the economy created 223,000 positions in June but the downwards revisions, disappointing wages and the low participation rate left a bad taste. This may slow the pace of rate hikes, but the first one could come still come in September. It also depends on Greece. Commodity currencies suffered with China: AUD/USD reached a 6 year low and also the kiwi and CAD suffered. Sterling stood relatively strong thanks to good positive UK data.

1. Greek Bailout Vote: Sunday. Sunday. Exit polls expected in the European afternoon, well before markets open, with full results later on. The referendum, now dubbed #Greferendum, has been announced by Greek PM Alexis Tsipras on June 26th and is on the creditors’ proposal that was described by Greece as “take it or leave it”. The Greek government rejected it and calls for a vote against it. It is unclear if this proposal is still on the table. Some European leaders have described it as a vote on euro-zone membership. What’s clear is that it is a vote on the current government’s future. A Yes vote, which is more likely due to the deteriorating situation in Greece, will likely result in a relief rally, as it opens the door to a new government that will accept whatever it’s told, but it’s unclear what government that will be. A No vote complicates the situation and could result in a big fall for the euro. And if the vote is very close, it adds another level of complication The referendum is one climax, but the Greek crisis is set to accompany us throughout the week. This is especially true as the creditors are now divided on debt restructuring.
2. US ISM Non-Manufacturing PMI: Monday, 14:00. Service sector activity slowed more than expected in May. The non-manufacturing purchasing manager’s index fell to 55.7 compared to 57.8 posted in April. Analysts expected a reading of 57.1. The New Orders Index came 1.3 points lower than 59.2 registered in April. The Employment Index fell 1.4 points to 55.3. Overall, the reading still indicated expansion and respondents were mostly positive about business conditions outlook on economic growth.
3. Australia: rate decision: Tuesday, 4:30. The Reserve Bank of Australia kept its official cash rate on hold at 2.0% in June, following a 0.25% cut in May and a 0.25% cut in February. Economists forecast another 25 basis points cut in August following disappointing economic data such as subdued consumer spending and poor business investment, downgrading economic growth forecast. However, the Australian economy had continued to grow at a slower than expected pace. The RBA awaits further financial data before deciding on another rate cut.
4. US Trade Balance: Tuesday, 12:30. US trade contracted 10% in April, reaching $40.9 billion compared to a revised reading of $50.6 billion in March. Exports edged up to $189.9 billion in April from $188.0 billion in March, and manufactured advanced to almost $2 billion. Imports declined to $230.8 billion in April from $238.6 billion in March, including consumer goods and services.
5. US FOMC Meeting Minutes: Wednesday, 18:00. These are the minutes of the June decision, in which the Fed published a somewhat lower dot plot. Given the generally dovish tone of that decision and the dovish composition of the voting members, it will be interesting to see if somebody wanted a rate hike already in June. In addition, worries about Greece (even though somewhat outdated given the recent events), the state of inflation and other topics will be interesting to watch.
6. Australian employment data: Thursday, 1:30. Australia’s job market improved in June with a bigger than expected jobs gain of 42,000, pushing unemployment rate down to 6% from a revised 6.1% in May. The recent rise in labor force was mainly due to part-time employment increasing by 29,800 while full-time addition was 15,900. Nevertheless, the figure was much higher than the 12,100 gain anticipated by analysts. The participation rate, however, remains unchanged at 64.7%. Analysts believe the unemployment rate will rise in the coming months due to subdued economic growth.
7. UK Rate decision: Thursday, 11:00. The Bank of England maintained the ultra-low rates at 0.50%, and kept its bond-buying stimulus program unchanged at £375bn. The Bank stated it intends to raise rates in the middle of next years after 6 years of ultra-low rates. However, in light of positive consumer and housing data, economists believe a rate hike will be in order in the first half of 2016 but much will depend on future economic growth data.
8. Canadian employment data: Friday, 12:30. The Canadian labor market rebounded slightly in May after a job contraction of 19,700 in April. May’s job numbers show a job creation of around 59K positions, although, nearly half are part-time. Economists point out that the job growth is actually weak, barely keeping up with the number of people entering the workforce. The unemployment rate remained at 6.8%, up from 6.6 per cent last October.