20150420 – DAILY FX MACRO

Good morning

High Low High Low
EUR/USD 1.0825 1.0766 USD/ZAR 12.0785 12.0065
GBP/USD 1.4985 1.4934 GBP/ZAR 18.08 17.95
EUR/GBP 0.7247 0.7202 USD/RUB 52.49 51.00
USD/JPY 119.03 118.52 USD/NGN 199.2 199.0
GBP/CHF 1.4272 1.4195 S&P 500 2,097 2,080
USD/ILS 3.9372 3.8905 Oil (Brent) 64.37 63.36

Greece continues to plague the markets with discussions ongoing on finding a solution to their debts. Discussions over the weekend at the IMF’s Spring Conference found no agreement forthcoming. In fact only last week we noted the IMF snubbed Greece so it is no surprise that no agreement or plan was found. This Friday is a crucial day in Greece’s calendar with a meeting of the EuroGroup and repayment of €1.5bn. I think it is fair to assume the Greeks are nearly out of cash and the repayment could very much fall into default (unless an extension is agreed). No one wants to see the Greeks exit the EU. Both sides want to find a solution and draw a line in the sand. However with the Creditors and Syriza standing firm on their positions we need a miracle to avert a full blown crisis from ensuing. As ECB’s President Draghi noted the EUR was better equipped than it had been in the past to deal with new Greek crisis, but he warned of “unchartered waters” if the situation were to deteriorate, suggesting that a Greek default and an exit from the single currency would be a shock with unknown consequences for the European economy. His statement echoed US Treasury Secretary Jack Lew who said that a renewed crisis in Greece would endanger the recovery in Europe as well as for the global economy, and the IMF’s chief Christine Lagarde last week advised the Greek government to speed up the technical work on designing reforms rather than hope for a grand political bargain. European Commissioner for economic and financial affairs Moscovici set the middle of May (11th) Eurogroup meeting as the ultimate deadline for an agreement to avoid a default. No doubt both sides want to find a solution. I have commented regularly that GREXIT will make the Lehman Brothers default seem like kids play. We are talking proper numbers here and more importantly we are talking about something that has never happened before. I am certain the ECB, FED, BoE, BoJ etc. have plans in place for such an event but putting it into practice will be another story altogether. The strain on the banks could be so severe we could see multiple bank collapses which in turn could lead to financial ruin for banks, companies (who lose their money deposited in the banks), individuals…do you see my point. Financial armageddon. You probably thinking the EUR is trading around PARITY after this…alas some weaker than expected US data coupled with profit taking saw the EUR APPRECIATE aver 1.08 handle on Friday. It has since fallen just below to 1.0785, needless to say all eyes on Greece this week.

As PARITYFX has noted several times recently about the state of the economy in China and our expectations, we saw the PBoC cut the RRR rate by a whopping 100bp effective today. Additionally they implemented stricter margin trading rules and stricter rules regarding the supply of shares available for short sale. With China’s growth “slowing” to 7% recently the PBoC are now using their financial muscle to boost that number back to 10%+ and what they are used to. As a result Commodity currencies – AUD, CAD, NZD – strengthened 0.4% against the USD, while Brent and WTI prices rose more than 1% today, following a 9% rise last week. The strength of the US economy is paramount to a global economic recovery. Not to be outdone, it is becoming more and more important that China (as well) grows. This is especially true for economies like AUD and NZ where China is their biggest trading partner.

UK elections a mere 17 days away with the winner looking as uncertain as ever. Perhaps one should look at the employment numbers recently to see how well the Conservatives have done to improving financial matters since the 2008 financial crisis. Jobless claims down 2.3%, average weekly earnings increased 1.8% (February from +1.6% in January) and the fastest growing economy in the Western World. Not a bad job by the Chancellor and the Governor.  You might not support the Conservatives in fact you might even dislike David, but what you can’t argue with is people are BETTER off and improving with every passing day. Just thinking along those lines and your X must appear next to the party that is promising more of the same growth and prosperity rather than the X next to the party that will take us back to 2008 and bankruptcy. Not to mention giving up on Trident!!! Oh-my-g-d: I would feel a lot safer knowing I had a Trident was protecting me and my family and friends. Someone needs to have a word with the party advocating getting rid of this. Perhaps we should have let them go-it-alone.


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