Fundamentals for the Week ahead 27 June 2015

Posted On 27 Jun 2015
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In last week’s piece we wrote that activity would be Greece drive. We were not wrong.

This week will once again be Greece driven plus the first Friday of the month which means the much awaited/anticipated/dreaded NonFarm Payroll number. This number will be released on Thursday due to the 4/7 public holiday in the US.

Sprinkle in turmoil in the Chinese stock markets and PMI data and the cocktail is complete!
Add the fact that it is the end of another quarter which means position squaring by funds and we have the perfect recipe for absolutely huge emotionally driven volatility. Stops will be hit, pain will be felt, brokers will increase margin requirements and more than a handful of traders will be wiped out.
Bring it on!

USD: We start on Tuesday with Consumer Confidence expected at 97.1.

On Wednesday we have NonFarm Employment Change thought to be 216,000 and Manufacturing PMI at 53.2.

Thursday is the big day when we have NonFarm Payroll thought to be 231,000 and the Unemployment Rate at 5.4%.
COT data shows that the large commercials net short position remained virtually unchanged from last week’s -65,003 to this week’s 63,553. CONTINUED BEARISH.
EURO: Absolutely no data of note for the Euro bar of course the big one: Greece.
The Greek government have decided that the Greek people will decide their fate with a referendum to be held on the 5/7. The nation that founded democracy acting democratically. The outcome is too fine to call h=but what we do know is that extreme volatility prior to the referendum is guaranteed. If we witness a bank run starting on Monday the Greek authorities may impose capital controls. All of this should be hugely Euro negative if it were not for the fact that the market is supported by being already heavily short.
COT shows that the large commercials slightly increased their net long position from last week’s 122,971 to 131,909. Not a massive move so it remains NEUTRAL.
GBP: Four items of note this week for the GBP starting on Tuesday when we have the Current Account number anticipated at -23.7B.
On Wednesday we have Manufacturing PMI at 52.6.
Thursday sees Construction PMI at 56.6.
Lastly on Friday we have the full set when we have Services PMI thought to be 57.4.
COT shows large commercials reducing their net long position from 25,547 by a not insignificant amount to 15,587 meaning that we move from a SLIGHT BULLISH BIAS to NEUTRAL.
YEN: Four items of note for the Yen.
On Sunday we have Retail sales estimated at 2.1%.
Monday sees the release of Average Cash Earnings thought to show a small rise of 0.7%.
On Tuesday we have the Tankan Manufacturing Index and the Tankan Non-Manufacturing Index. The former is expected at 12 and the latter at 23.
COT show that the large commercials increased their net long position by a small amount from last wee’s number of 130,620 to 135,325. This therefore remains VERY BULLISH.
AUD:There is no important data for the AUD this week.
COT data has turned neutral as large commercials reduced their net long position from 34,010 to 19,713. SLIGHTLY BULLISH.
For the AUD the week starts on Tuesday when the RBA Governor speaks in London.
On Wednesday we have the Trade balance expected to show a deficit of 2.21B.
Finally on Thursday we have Retail sales expected to show a slight increase of 0.5%.
COT data shows that large commercials increased their net long position from 19,713 to 24,475. We therefore move from SLIGHTLY BULLISH to BULLISH.
CNY: Tuesday is the only day with data when we have both Manufacturing PMI at 50.3 and the HSBC Final Manufacturing PMI expected at 49.6.
Most importantly however the PBOC cut its lending rate by 0.25% to a record low 4.85% and its reserve requirement ratio by 0.50% effective from 28/6.
This follows the biggest drop in Chinese stock markets since 1996.
It is too early to tell whether this is enough to force capital back into the markets or is seen as a desperate attempt to shore up the markets.
There is no COT data for the CNY.
OUR VIEWGreece, Greece and more Greece.
As I write reports are already coming in that queues are forming at ATM machines as Greeks drain their Euros in anticipation of possible capital controls. The more Greeks withdraw from the banks, the more the banks have to ask the ECB for ELA (Emergency Lending Assistance). However they are quickly running out of collateral. No qualifying collateral means no assistance which means capital controls. It is a vicious circle.
The European Commission has poured scorn on the Greek decision to hold a referendum as they claim this firmly closes the door on any possible resolution and therefore a likely end to ELA. Capital controls look a certainty.
Add the US NonFarm Payroll figure at the end of the week will ensure HUGE volatility.

Stay nimble. Good luck trading.


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