Whatever criticisms one can make of Syriza’s handling of its negotiations with its creditors since it came to power, and there are many, one inescapable fact remains, and that is the fact that Greece’s debt burden remains unsustainable, and that the current bailout program is not fit for purpose. The IMF has already indicated that Greece’s debt needs reducing or restructuring, but due to pride, hubris or whatever you want to call it on both sides we are faced with the very real prospect of a Greek default in the coming days, and an outcome that no one really wants. With Greek finance minister Varoufakis ruling out making any new proposals to EU officials in the days ahead, and Greek Prime Minister Tsipras accusing the ECB of asphyxiating his country, and blaming the IMF for “criminal” responsibility for the country’s plight, a solution looks as far away as ever, with even German Chancellor Angela Merkel admitting that the talks are stuck. The ECB is also due to decide later today whether to increase the haircuts on Greek collateral in respect of the ELA for Greek banks, as cash continues to drain out of the Greek banking system. The UK economy also remains in focus after yesterday’s inflation data saw CPI for May recover back into positive territory after Aprils dip into negative territory. Today’s unemployment data is expected to point to a continued improvement in the jobs numbers with claims continuing to drop, while the ILO unemployment rate is expected to remain at 5.5%. More importantly the latest average earnings data is expected to point to a significant jump in private sector wages in the three months to April, as the new tax year gets under way, with a jump to 2.5% expected as long awaited pay rises start to filter down into the economy. A sustained improvement here would go a long way to moving the debate along with respect to a prospective rate increase. In this context today’s Bank of England minutes are likely to be no more than a footnote on the day’s events, but given recent comments by MPC members Martin Weale and Ian McCafferty about the potential for rate rises in the near term, the overall tone of the minutes could well give clues as to how the rest of the MPC lines up in that regard. Both Weale and McCafferty were in a minority who were in favour of a rate increase last year, before coming back to consensus this year, which means they are likely to be early bellwethers once again with respect to a change in tone. Away from events in Europe there is also the small matter of the conclusion of the latest FOMC meeting, where US policymakers are likely to have a slightly concerned eye on events in Athens. With expectations of a rate hike minimal the primary focus of today’s meeting will be the tone of the statement, as well as the press conference. Recent economic data has pointed to a rather uncertain outlook for some areas of the US economy, a fact that has been articulated by a number of eminent members of the rate setting committee in recent days. In this context the economic forecasts are likely to be closely scrutinised for any evidence of optimism about the glide path of the US economy, and in particular whether members of the committee feel confident enough to upgrade their growth and inflation forecasts so soon after the March downgrades. This seems unlikely given that recent moves by the OECD and IMF have been to downgrade their US growth forecasts. It would be highly unusual for the Fed to go the other way. Opinion remains sharply divided as to whether the Fed will adopt a hawkish or dovish tone with respect to timings of a possible rate adjustment. It would be surprising if the Fed were overtly hawkish in its statement, given recent concerns about lacklustre growth, and while we may get some encouraging noises about the jobs market, inflation still remains fairly benign. This suggests that the hawks have more chance of being disappointed than the doves. EURUSD – the euro seems content to range trade between support around the 1.1200 area and the highs this month at 1.1380/90 level. Major support still sits at 1.1050, a break of which could see a significant move lower. The main resistance remains at the May highs at 1.1480. GBPUSD – the pound continues to be well supported on dips finding support at 1.5540 yesterday, having pushed through the 1.5600 level earlier this week. The next target sits at the May highs at 1.5815. Only a fall below the 1.5400 level suggests a move back towards trend line support at 1.5320, from the lows this year at 1.4565. EURGBP – the euro continues to decline having failed to push above 0.7250 yesterday, which suggests the possibility of further weakness towards the 0.7080 level. Only a move back through 0.7250 argues for a return towards 0.7300. USDJPY – the break below the neckline support late last week now at 124.40 opens up the prospect of a move towards 121.80 as the recent topping pattern alluded to last week played out. The 124.20 neckline level should now act as resistance on any pullbacks. 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.
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