Markets Brace for Second Austerity Vote in Greece; Canadian CPI Rises to 3.7% |
Asian stock markets are following other risk assets higher as sentiment remains elevated, as it has for most of the week. The EUR/USD has traded above the key psychological 1.45 area, continuing the gains made after the austerity vote in Greece. The Dollar is currently lower against its major counterparts. For the moment, markets seem to be working off of the assumption that “no news is good news” and as a result risk appetite is making progress. The EUR/USD is seen between 1.4520-1.4420, with the USD/JPY slightly lower at 80.90-80.30.
The majority of the attention continues to center on the Eurozone. Markets will be watching CPI data and a strong number here will keep interest rate expectations supported and bring buyers to the Euro. The current expectation is that there is an 80% chance of a rate hike at the next ECB meeting, and a strong CPI number will bring us even closer to a confirmation of this.
The upward moves in the Euro are being driven by the austerity vote yesterday. Trading conditions were choppy for the most part as some sections of parliament voted against the bill and this added an additional element of uncertainty.
However, the bill was eventually passed, with a vote of 155 to 138. After this, the intraday moves were strong and the Euro broke above key psychological levels. After the vote, the German Chancellor (Merkel) said that the agreement will help to stabilize the Euro. But other ECB council members (Orphanides, for example) continue to voice concerns about potential negatives that exist, saying that the debt crisis is still “quite dangerous territory”.
There will be a second parliamentary vote on Thursday, which is meant to pass the legislation that will be required to put the agreed austerity measures into practice. This second vote is also expected to pass even though the Prime Minister (Papandreou) expelled his deputy from the political party (after he showed dissention) and this leaves the party with a slimmer voting majority.
In Switzerland, the finance minister (Schneider-Ammann) said that the government should do nothing to interfere with the value of the Franc. He expressed the belief that exporters will be able to tolerate the historical elevated currency value and that the strength we are seeing will likely continue for some time, which is essentially a green light to buy the CHF on any dips.
In the UK, GfK consumer confidence dropped to -25 for the month of June, which was lower than market expectations.
The better figures from May came from the fact that the better weather conditions that are being seen and bank holidays. So, the June figures are more indicative of the overall trend, with the retail sector in the UK being one of the weaker points.
In Canada, inflation figures for the month of May were released and these were well above market expectations. This led the USD/CAD lower, ending the small rally that had been seen recently. This pair will continue to see declines as long as there risk appetite remains healthy. The headline CPI figure rose +3.7% on a yearly basis, well above the +3.3% rise that was the consensus expectation. Core figures were also much higher, coming in at +1.8% on a yearly basis.
