21.06.2011 - XTB market snapshot

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Date: 2011-06-21 09:31

China buys euro debt… / …as investors await a confidence vote in Greece / Events to watch – Greek vote, US home sales, German ZEW.

China buys euro debt…

Chinese officials gave numerous warning to the US authorities over their public finances and at the same time gave support to the euro zone. It turns out to be more than just politics. The data for the first four months of this year reveal that the Chinese indeed begun diversifying away from the dollar. Out of 200 bln USD of fresh reserves only some quarter was invested in USD denominated assets while substantial amounts were invested in German, French and EFSF debt. For the markets it might be more than just actual flows, it might be seen that due to permanent (as it seems now) fiscal issues in the US, the dollar is (slowly but consistently) giving away the status of the global currency. Should other circumstances be more favorable, this trend could trigger some kind of rally of the common currency. 

…as investors await a confidence vote in Greece

Those conditions depend largely on what will happen with Greece. A lot might be decided today as the PM will face a confidence vote in the Parliament. The fact that 47% of Greeks oppose new austerity measures (against 35% supporting) and would prefer early election (and as a consequence: default, total chaos in Greece and the crisis spreading across Europe) means that a path towards extra aid from the EU/IMF is very bumpy. As a result, even with a theoretical majority of 155 out of 300 seats the government might not be 100% certain about a victory in the vote as some may use it as an opportunity to gain popularity among voters. A failure to secure a confidence vote would probably send Greece into default and euro way lower.

However, securing the vote might open the door to the next tranche of aid and help generate some kind of rebound on the markets. The euro is trying to recover not only vs the dollar but also vs the Swiss franc. Last week EURCHF saw new historical lows but ended the week drawing a spin candle. Limits of the candle – 1,1940 and 1,2250 have been respected so far and moving beyond of of them may set a medium-term direction on the market. Should the pair move beyond the upper one, there will be a substantial scope for rebound – the upper limit of a long-term declining channel is as far as nearly 1,30 at the moment.

Events to watch – Greek vote, US home sales, German ZEW

After nearly empty calendar on Monday, investor will have two figures on Tuesday to focus on: German ZEW (5.00 ET, 11.00 CET, consensus -2 pts.) and the US used home sales (10.00 ET, 16.00 CET, consensus 4,8 mln). However, unless we see a larger surprise, the impact will not be sizable as most eyes are focused on Greece at the moment.      

Przemysław Kwiecień PhD, Chief Economist

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