Greece Drama To Continue As Tsipras Called For Referendum

Euro ended last week broadly lower, together with Swiss Franc, on endless Greek debt negotiations. The drama stepped up to another level as Greek prime minister Alexis Tsipras announced on Saturday to hold a referendum on whether to accept the demands of the international creditors. The date for the vote will be on July 5 which is after the deadline of June 30 when Greece is required to repay EUR 1.5b to IMF. Eurozone finance ministers are supposed to meet on Saturday to discuss an extension of bailout program to Greece till November. But it's reported that after the announcement of referendum, Germany has decided not to support the extension. It's viewed by some analysts that even if Greece fails to repay IMF on June 30, it wouldn't be considered a "default" technically. But now, EU leaders are believed to be seriously considering a so called "Plan B" and the uncertainty will only increase with time before the vote. Euro would most likely stay pressured.

Another surprised development was that China's central bank lowered interest rate to a new record lower, together with lowering of reserve-requirement ratios for some banks after recent stock market crash. The one-year lending rate was cut by 25bps to 4.85%, the fourth cut since November. One-year deposit rate was cut by 25bps to 2.00%. Reserve requirement ratio for some banks will be lowered by 50bps.The move showed that China is struggling to meet the growth target of 7% for 2015, which would already be the slowest since 1990. The global markets will be rocked by these two news on Monday's open.

Dollar ended last week as the strongest major currency. There seems to be growing confidence that rebound in economic growth in Q2 was solid and would be carried through to the rest of the year. Markets were relatively more certain on their expectations that Fed would start hiking interest rates in September. And traders were building up dollar long ahead of this week's non-farm payroll from US, which would be released on Thursday. The sentiments could also be seen in the rally in US treasury yields. However, it should be noted that developments in Greece would have big impact on global risk appetite, which would indirectly affect Fed's decision on rate hike.

Regarding trading strategies, we're firstly holding on to AUD/USD short. The pair looks like breaking out with Friday's fall. More importantly, AUD/USD seems getting no support from the news of rate cut from China. We'd possibly finally see recent down trend resumes this week. Stop will be held at 0.7850 and we're anticipating at least a test on 0.7532 low next.

We're also holding on to EUR/AUD long. Technically, we're looking at larger up trend resumption in EUR/AUD. That is, the medium term consolidation pattern from 2014 high of 1.5831 should be finished at 1.3671. And the up trend from 2012 low of 1.1602 is resuming for a new high. However, recent turmoil in Greece might delay such bullish development. We'll keep our stop at 1.4350 to give the cross a bit breathing room. In case of a steep fall, we'll look for buying opportunity again at a later stage. Meanwhile, we'll continue to stay away from adding new positions.