They say the definition of insanity is doing the same thing over and over and expecting a different result, yet having examined the latest measures being discussed by the Greek government and EU creditors it does appear that is precisely what is happening. Despite this, and having had a couple of days to absorb the details of the new Greece debt deal, equity markets have continued to remain upbeat, despite the fact that the proposal is economically illiterate and probably doomed to fail. That’s always assuming it even gets as far as being implemented in its current format, which at this point looks unlikely. The main concern revolves around the fact that most of the revenue measures involve additional taxes on an economy that is back in recession, and where unemployment remains at record levels. Putting aside for one moment the prospect that the measures are likely to split not only the Greek government, they also look set to split the parliament as well. It seems like a big ask for any Greek politician to vote for measures that would do absolutely nothing to help the Greek economy in the short term. This could mean that for any vote to get passed Tsipras may need the help of the opposition to get any bill through, and if that were the case then there is a risk the government could fracture and collapse. As things stand, things may not get that far given that the Greek Prime Minister will be in Brussels later today to meet with ECB President Draghi, EU Commission President Juncker, and head of the IMF Christine Lagarde. Given how the new plan relies on trying to raise new revenues when the economy is shrinking, it would be surprising if the IMF were to sign off on a deal which has some very optimistic forward looking assumptions, which in the real world are unlikely to be met. There is also the fact that it has been reported that the fund isn’t comfortable with the amount of money being raised by new tax measures, on an economy that they have already previously stated is over taxed. With Germany insisting on parliamentary approval by the Greek parliament of any new measures before any new money is released, the road to a deal is not as clear as markets would like to think, meaning that the IMF is unlikely to get paid its €1.5bn on time. On the data front we have the latest German IFO business climate survey for June, which given the disappointing ZEW survey is expected to come in a little bit weaker. This might be misleading though as German businesses tend to be a little more pragmatic than investors, and given the recent PMI data we could see an upside surprise. Expectations are for a slight decline to 108.10 from 108.50. Also on the agenda today we have the final iteration of US Q1 GDP with an expectation that the downward revision to -0.7% we saw a few weeks ago could well get revised up to -0.2%. EURUSD – yesterday’s fall below 1.1200 undermines the prospect for further gains in the short term and opens up the prospect of a test of the 50 day MA at 1.1115, and key support at 1.1050, where we also have the 100 day MA. We need to get back through 1.1220 to stabilise. GBPUSD – the break below 1.5800 yesterday has prompted a deeper correction which could bring us back towards the 1.5400 level. Initial support sits at 1.5680, but the risk remains for a test of trend line support at 1.5400, from the 1.4565 lows. We need to get back through 1.5820 to stabilise. EURGBP – yesterday’s sell off has brought us closer to the recent lows at 0.7080, with a break below targeting the lows this year at 0.7015. Intraday resistance can be found back near the 0.7130 area, with a move back above retargeting the 0.7220 level. USDJPY – the US dollar has managed to regain a foothold back above the 123.30 level, but it needs to retake the 124.20 level to retest the highs of 125.85. While below 124.20 the risk remains for a return to the 122.60 lows, and then 121.80. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Tsipras back in Brussels as Greek government starts to fracture
01:00, 24 June 2015