Greece loan decision delayed again, markets look to German ZEW and UK CPI
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
Last night we learnt that a decision on the next Greece
aid tranche has been put back to next week on November
20th, the day after the Bundestag is scheduled to vote on an amended Greek programme, which is expected to see Greece granted an extra two years due to the severity of the current recession.
Even allowing for this apparent 2 year extension there still remain significant differences as to how the question of where the ?30bn will come from to pay for this extra time, as well as the question of how the debt sustainability will be managed with Eurogroup?s Juncker and IMF chief Lagarde disagreeing after Juncker stated that the 120% debt to GDP target had been moved to 2022. Lagarde?s comment was a terse ?we
clearly have a different view?, which doesn?t really bode that well for future harmony.
Despite this spat the issue of the ?5bn Greece Friday loan repayment to the ECB was brushed aside with Rehn saying that he remained sure that Greek banks had enough available collateral to cover today?s Greece t-bill auction. Given that the success of this auction could dictate whether or not the ECB has to adjust its collateral rules Greek officials will be hoping that the auction is fully covered, and that they can then make the relevant payment on Friday.
Away from Greece and back in Germany concerns remain about the recent slowdown in economic activity in Europe?s largest economy with expectations we could well see a negative Q4, given how poor some of the recent economic data has been.
Today?s latest economic sentiment ZEW survey is expected for November and is expected to improve only slightly from -11.5 to -10. This remains a key indicator with respect to business confidence and has been improving slowly since the August reading of -25.5, but it needs to recover a lot quicker to suggest a recovery could be imminent in the next six months.
Before the German ZEW is released the UK has a set of rather important CPI inflation numbers due out for October and expectations are for prices to start ticking back up again after the slow decline seen over the summer months.
The increase in university tuition fees, as well as rising food and energy prices could well have given the Bank of England pause for thought at last week?s rate meeting when the MPC decided to leave monetary policy unchanged. The recent price rises by energy suppliers will feed through in the next month or so which could push prices up to 2.4% (y/y) today and possibly to 2.5% by year end.
Retail prices (RPI) are also expected to jump sharply from 2.6% to 2.9%, meaning that once again the consumer will find incomes squeezed, heading into the very important Christmas period for the retail sector.
EURUSD ? the single currency continues to look a touch on the heavy side, as it closes in on the 1.2650 level and 100 day MA. Just below that we also have 1.2605 which is 50% retracement of the 1.2045/1.3170 up move.
To alleviate the downward pressure the euro needs to get back above the 200 day MA at 1.2825.
A rebound needs to overcome the 1.2900 level to stabilise and target 1.3000.
GBPUSD ? the 200 day MA at 1.5850 remains the key support here with a break below this key level opening up the potential for a move towards 1.5790 and 1.5660.
Rebounds need to get back above the previous support level at 1.5960 level to retarget last week?s high at 1.6050.
The pound needs to get above 1.6080 to open up a move back towards 1.6180.
EURGBP ? the 50% retracement of the up move from 0.7755 lows to the 0.8165 highs at 0.7955 has held so far with a bullish daily candle on Friday suggesting the potential for a rebound.
We need a break of resistance at 0.8030 to confirm a retest of the 0.8075 31st October highs; otherwise the trend remains for a lower euro, towards 0.7920.
USDJPY ? the break below the 79.75 level undermines the bullish scenario once more with Friday?s low at 79.00 a 50% retracement of the up move from the 77.25 lows to the 80.70 highs. A break here opens up 78.55.
The US dollar needs to recover back above 79.80 to retarget the 80.70 level.
Equity market calls
FTSE100 is expected to open 14 points lower at 5,753
DAX is expected to open 20 points lower at 7,149
CAC40 is expected to open 13 points lower at 3,399