Markets Broadly Lower as Fitch Downgrades Greece; Bernanke Dovish in His Congressional... |
Yesterday, the Federal Reserve Chairman (Bernanke) gave his semi-annual testimony before Congress with a markedly dovish tone and went even as far to suggest that government stimulus and quantitative easing measures are not out of the realm of possibility. For the most part, his statement was similar to his comments from June but what can be seen here is that the Fed seems to be keeping all of its options open until there is a firm recovery in the economic data. Market jitters continued as the Eurozone finance ministers held an emergency meeting and Fitch downgrading the Greek credit rating to its lowest level. The EUR/USD trades at 1.4130-1.4280, with the USD/JPY continuing its recent drop and falling to 78.50-79.60. Macro data today will focus on Eurozone CPI figures and jobless claims from the US.
There continues to be disagreements between different Eurozone entities about the prospects for an emergency session on Friday to discuss plans for the debt problems that are currently being seen. The German Chancellor (Merkel) said that no such meeting will take place but other sources have said that there will be a Friday meeting. Essentially, the significance of this is that the element of uncertainty that will be created by the potential policy changes that could be seen will weigh on risk sentiment and most likely send regional equities lower throughout the week.
Ratings agency Fitch added to market turmoil with the decision to downgrade Greece’s credit rating to CCC. The accompanying statement gave its reason as lack of confidence in the planning and funding of the EU/IMF strategy and said that the level of private sector involvement that is being required could contribute to possible defaults.
In macro data, Eurozone industrial production during the month of May rose +4.0% (the yearly figure) against expectations of a +4.8% increase, and weighed further on market sentiment. Employment figures out of the UK were mixed as the June claimant count was much higher than anticipated, 24,500 (estimates called for a printing of 15,000) but the ILO data was positive and showed growth in the labor market. Sterling dropped during the session and this trend will likely continue to be the case as long as the BoE maintains its current policy stance.
The Japanese Finance Minister (Noda) made comments referring to the recent Yen strength (which has seen drastic volatility this week), and expressed concerns for the problems that this will cause for the country’s export economy. Recent moves have been extreme, dropping to lows of 78.45 in the USD/JPY. The BoJ has not confirmed any intervention activity, but at these levels, this factor will continue to be a possibility.
Technicals:
The Yen-based pairs have seen most of the activity so far this week, so we will look at the key levels in the NZD/JPY as a way of gauging the action. Looking at the longer term, prices are currently pressuring the 50% Fib resistance level of the drop from 98.95. This area comes at the psychological 70 level, which is also a double top on the weekly charts. A break and close above this area would be extremely bullish and target the 61.8% level at 77.40. Preferred strategy is buying dips to support at the 65 level.
