Greece deal delayed, again
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
It would surely have been hoping for too much to expect some form of agreement from last night?s Eurogroup meeting and so it has proved as the obstacles to an agreement continue to prove politically difficult. It now looks as if we will have to wait that little bit longer with EU ministers agreeing to reconvene next Monday to work through further technical details, as policymakers strive to close the gap between the IMF?s position of debt restructuring and sustainability, and Germany and others position of no to the politically toxic option of debt forgiveness.
And once again markets wait as political theatre takes precedence over economic reality as we still await a decision on the next steps in this long drawn out saga surrounding Greece.
This month?s decision by the Bank of England to hold QE at £375bn could well have been a close run thing given comments by MPC member David Miles earlier this week, given some of the recent economic data.
The fact that both Charlie Bean and Mervyn King have expressed doubts as to the effectiveness of further QE has been tempered somewhat in recent days by Governor King?s comments that he believes that QE still has a place in the bank?s policy toolbox.
This morning we will see how much of a close run thing it was with the publication of the latest minutes of that November meeting and the reality could well spring a surprise, especially if wasn?t as close a decision as markets think.
The balance of the voting patterns will be of key importance, especially if the majority of the committee voted to maintain the status quo at £375bn, we could see sterling push higher as that would suggest no further easing until next year at the earliest.
It would appear that the FLS is starting to have an effect given recent data from the Council for Mortgage Lenders showed a distinct recovery in mortgage lending for October, which could well see the Bank hold off from further measures until next year.
Also out at the same time the October public finance figures are also due where we will get to see how far behind the Chancellor is with respect to his borrowing targets ahead of next month?s Autumn Statement.
In the US the latest weekly jobless claims are due out early this week due to Thanksgiving and markets will be watching to see if the sharp Sandy induced rise above 400k has been significantly reversed, with expectations of a fall from 439k to 410k.
EURUSD ? the euro is still struggling in and around the 200 day MA at 1.2810 but below 1.2850 trend line resistance from the 1.3150 highs, keeping pressure on the downside. A break through here targets the 1.2920 area and 50 day MA. Support comes in at 1.2700 trend line support from the 1.2050 lows, a break of which could well target 1.2605 which is 50% retracement of the 1.2045/1.3170 up move. The current rebound needs to overcome the 1.2900 level to stabilise and target 1.3000.
GBPUSD ? the pound continues to gain traction gradually above the 1.5900 area, and needs to get above the 1.5960 area to really push on towards 1.6050.
To push conclusively lower we would need to see a move towards and break below 1.5800 trend line support from the 1.5270 lows as well as 1.5660.
EURGBP ? the euro continues to struggle below last week?s highs at 0.8065 and the 200 day MA at 0.8080. Only a move beyond the 0.8080 level has the potential to retarget the October highs at 0.8165.
On the downside trend line support comes in at 0.7985 from the July lows at 0.7755.
USDJPY ? the 81.80/82.00 area continues to cap the US dollar gains but does appear to be gearing up for a break-out towards the March highs above 84.00. Last week also saw the US dollar close above the weekly cloud for the first time since April, which should be bullish.
The 80.60 level should now act as support; otherwise we?ll end up heading back towards the November lows at 79.00.
Equity market calls
FTSE100 is expected to open 10 points lower at 5,738
DAX is expected to open 19 points lower at 7,154
CAC40 is expected to open 11 points lower at 3,451