Greece to accept a humiliating deal
It almost done, Greece will certainly not exit the single currency. However, the level of uncertainty remains elevated as the Greek parliament will have to pass significant legislation in order to unlock fresh boilout funds, which will likely face opposition from Syriza. Indeed a large part of the Greek people feel that Alexis Tsipras, Greece’s Prime Minister, has betrayed their trust after the “oxi” vote. However, M. Tsipras should find support from mainstream opposition – i.e. centre-left Pasok, populists To Potami and centre-right New Democracy - while trying to pass the required legislation.
Besides developments in Greece, we wonder whether the Eurozone will be able to remain united and to return to business as usual despite the heavy scars left by the fight between Greece and the EU’s economic dominant country, Germany. EU’s biggest economy was more than ready to let Greece leave the monetary union while French President, François Hollande, was more prone to give some slack to the cash-strapped nation. At the end, the Germans not only won but they also made Greece to accept tougher bailout terms than the ones that had been submitted for voting. It appears clearly now that the power relationship between Eurozone’s countries is skewed towards a few “healthy” countries such as Germany, the Netherlands and Finland. Even though, it is hard to predict how Spain and Portugal will react to Germany’s assumed dominant position, we believe that it definitely increased the odds of a Brexit as Britain will not look kindly on a German domination in the European Union.
The US and Iran reached a deal
A nuclear deal is likely to be signed off on Tuesday. Negotiations were tense over the past two weeks as most of the discussions were about preventing Iran to get a nuclear weapon in exchange of lifting economic sanctions from United Nations. Another important point of those negotiations is that Iranian officials are reluctant to allow US experts to visit Iranian military sites. Rumours say that this specific point has not been included into the final agreement.
Also, Iran’s nuclear deal is likely to push downside pressure to oil as Iran announced on many occasions that it will oversupply the market as soon as sanctions are eased. Crude oil prices have, besides, lost more than 20% in a month going from $61.82 to $50.58 a barrel. Meanwhile, OPEC is decided not to lower its production until, at least, its next meeting in December that will be held in Vienna. This is likely to impact massively the US economy as it is a massive oil producer. WTI is now targeting 50$ which would be a 3-month low. This nuclear deal shows that the United States are ready to pressure their own oil industry as it will provide them more controls on the Middle-East area.
Switzerland's deflationary pressures eased
Swiss PPI y/y printed in line with expectations at -6.1% but below prior months read of -6.0%. While June PPI m/m decreased -0.1% from -0.8% in May indicating that the deflationary trend could be slowing, the prior sharp price fall will weigh on consumer prices. This read will provide no comfort to the SNB which is already struggling to control Switzerland from slipping into a deflationary spiral. Recent rise in sight deposits and verbal confirmation of direct FX interventions indicates that the SNB tolerance for addition CHF strength against the EUR is limited. However, with a balance sheet over 85% of GDP the central bank has restricted firepower. Much will depend on the outcome of the Greece debt crisis. With Switzerland’s weak economy and defense monetary policy, investors should begin to reallocate capital elsewhere. However, should the euphoria of the “wolf in sheep’s clothing” Greek bailout agreement get exposed before passing EU members and Greek parliamentary vote, watch for renewed inflow to gradually support CHF.
USD/CAD- Breaking Resistance at 1.2780
EUR/USD is still trading between hourly resistance at 1.1278 (29/06/2015 high) and hourly support at 1.0916 (07/07/2015 low). Stronger resistance lies at 1.1436 (18/06/2015 high). The short-term downside momentum is likely to continue. In the longer term, the symmetrical triangle from 2010-2014 favors further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).
GBP/USD is now drifting lower below 1.5500. Hourly support is given at 1.5330 (08/07/2015 low) and hourly resistance can be found at 1.5644 (03/07/2015 high). Nonetheless, we expect the pair to decrease again within the next few days. In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY, after a sharp increase, is now consolidating. Hourly support is now given at 120.41 (08/07/2015 low). Hourly resistance can be found at 124.45 (17/06/2015 high). Stronger resistance still lies at 135.15 (14-year high). The technical structure still suggests a downside momentum as the pair is setting lower highs. A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF is approaching again hourly resistance at 0.9543 (27/05/2015 high). Stronger resistance can be found at 0.9719 (23/04/2015 high). Hourly support can be found at 0.9151 (18/06/2015 low). The pair is likely to erase hourly resistance at 0.9543. In the long-term, there is no sign to suggest the end of the current downtrend. After failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found 0.8986 (30/01/2015 low).
