Market Drivers July 20, 2015
PM Key says kiwi has fallen faster than expected
Commodity index hits 13 year low led by gold
Nikkei 0.25% Europe -0.17%
Oil $51/bbl
Gold $1115/oz.
Europe and Asia:
GBP Rightmove 0.1% vs. 3.0%
EUR GE PPI -0.1% vs. 0.0%
North America:
CAD Wholesale Sales 8:30
For the first time in weeks the currency market saw a relatively sedate opening to the start of trade as the crisis over Greece no longer dominated speculative flows and EUR/USD managed to find a modicum of support ahead of the 1.0800 figure.
The pair may settle into a quiet range for the next week or so as markets observe the re-opening of banks in Greece and the legislative moves in various European parliaments. Over the weekend Ms. Merkel made an acknowledgement that sometime down the road she would be open to negotiating both the interest and the duration of the loans, although she insisted that debt forgiveness was off the table.
Although Ms. Merkel's position was hardly accommodative, it was the first time ever that she considered the possibility of debt reprofiling and therefore was tantamount to a tacit acknowledgement that despite all the financial acrobatics over the past several weeks, the current bailout deal for Greece is unsustainable in the long run and some sort of debt relief will be necessary.
It's clear that for political reasons Germany cannot entertain the notion of our debt forgiveness which is why debt reprofiling that would extend maturities and lower interest costs may be the only viable political solution in the Eurozone. But even that option appears to be far off as all parties focus on the immediate debt service needs of the country.
With euro quiet, the true action on the market was in the kiwi which popped nearly a cent after Prime Minister John Key noted that the pair had fallen faster than expected. The kiwi has been in a near free fall for the past three months dropping more than 1200 points or 15% from .7700 to .6500. The PM may be concerned that such a sharp drop could cause a spike in import prices and may prefer a more managed decline.
Still with commodity price at a 13 year low and RBNZ expected to cut rates this Wednesday it's difficult to see kiwi gaining much upside traction. The pair could stage a mild dead cat bounce towards the .6800 figure, but unless RBNZ signals a pause in rate cuts after this week's meeting the rebound in the pair is likely to quickly lose momentum.
In North America today the calendar is quiet and leading to a relatively quiet session as traders digest the activity of the past few weeks. With euro and commdollars so grossly oversold the specs may seize the moment and try to push the pairs higher on short covering flows as the day proceeds.