Late on Wednesday evening Greek Prime Minister Alexis Tsipras assured an assembled pack of journalists that Friday’s repayment to the IMF of €300m would get paid on time, but as a week is a long time in politics, a day goes by in a blink of an eye, and last night’s sudden change of mind has raised the stakes even further as this high stakes game of Jenga goes on between Greece and its creditors. One false move from one side or the other, and the whole fragile edifice could well come tumbling down. As it is the decision to row back on the initial pledge to pay the money has sowed yet another seed of distrust on what was already a pretty fractious relationship, between Greece and its creditors. It appears the decision was made as result of splits within the Greek government as Alexis Tsipras strives to hold his party together, and it now looks like that the fall back decision for all parties is to put all their hopes on the so called roll-up option of all the June payments, and hope that an agreement is arrived at by the end of June. Given the splits starting to open up within Syriza it is slowly becoming apparent that the differences between certain parts of the Greek government and the creditors are irreconcilable and that irrespective of what happens between now and the end of the month any sort of agreement remains as far away as ever. As such it can only be a matter of time before capital controls get put in place. While the stakes in Greece have been raised further we also have the small matter of today’s US employment report, which has taken on a much greater resonance after yesterday’s unexpected intervention by the IMF with respect to the potential timing of a US rate rise. In its latest economic report the fund cut its growth forecast for 2015 from 3.1% to 2.5%, citing concerns about the strength of the US dollar, and urged the Fed to hold fire on any rate rise, due to instabilities in the financial system. The timing is especially prescient given this week's interventions by Lael Brainard, one of the new permanent voting members on the FOMC, and who, up until now, had kept a fairly low profile. In a surprise change of tack, non-voting FOMC member St. Louis Fed President James Bullard, who has been arguing for a rise in rates for most of this year, changed tack and said the recent run of soft data had given him pause. The IMF went on to urge the Fed to be cautious and suggested that a rate rise in early 2016 would be a better bet given current conditions. Expectations for today’s May payrolls is for 226k new jobs, a slight increase in April’s 223k, with the unemployment rate set to remain unchanged at 5.4%, though this week’s weak ISM services employment components could see this number come in short. Given the lack of price inflation as well as wage inflation the latest average hourly earnings data can also expected to deliver a market reaction if it deviates significantly from expectations. On an annualised basis they are expected to come in at 2.2%, unchanged from April, while on a monthly basis a rise of 0.2% is expected. EURUSD – the euro topped out at 1.1380 yesterday before sliding back. As long as we remain above the 1.1220 area then the risk remains for another run to the upside, and the May highs at 1.1480. A move below 1.1200 agues for a return towards the lows this week at 1.1075, and the key support at 1.1050. GBPUSD – having pushed up to 1.5440 yesterday we saw the pound drift back down again. As long as we stay above the support of the 50 and 100 day MA now at 1.5175, then the bias remains for a move towards the 200 day MA now at 1.5520. EURGBP – having reached the 0.7380 level yesterday we saw a sharp pullback, with support currently at the 0.7300 area. A break below here argues for another run down towards the 0.7230 level. USDJPY – this week’s reaction off 125.03 has all the hallmarks of a potential top but we need to break below 123.60 to suggest a potential reversal and a move towards 122.00. We also have resistance at 124.70, the highs of the last two days. 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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