AUDUSD: The Australian dollar was slightly higher late Tuesday but markets remained cautious ahead of a vote in Greece this week on austerity measures needed to underpin an international debt bailout for the beleaguered country.
As a measure of the Australian market’s nervousness, debt markets have priced in a potential emergency cut in interest rates in January. OIS pricing puts a 76% chance of a rate cut by December and 100% by January.
The Australian dollar is often viewed as a barometer of global confidence and any failure of the vote could quickly lead to upheavals in European banks, which would transmit quickly to world markets.
We expect a range for today in AUDUSD rate of 1.0470 to 1.0570 (We set to short at 1.0570-90, stop loss at 1.0650, target at 1.0470 to 1.0430)
EURUSD: Any failure of the Greek parliament to support the proposed five-year US$40 billion in budget cuts could put the country on a path to bankruptcy and trigger flow-on effects for the euro area and global markets
While optimism rose somewhat in markets Tuesday that the austerity measures would be accepted, Greece’s socialist government was expected to face a knife-edge debate on the floor of parliament to force the issue.
The European Central Bank and others hope the result will convince investors that the EU is being transparent about the extent of banks’ problems, and that reluctant bloc members will decide to backstop lenders unable to raise money.
People in the euro zone, including one senior central banking source, told that the European Banking Authority will announce within weeks that 10 to 15 of 91 banks being scrutinized had failed, with the worst performers expected in Germany, Greece, Portugal and Spain.
The EBA wants the number of banks that don’t pass to be around 10-15 to show that the tests were serious, adding that the banking authority doesn’t want to push for more failures, fearing that could spark a panic.
We expect a range for today in EURUSD rate of 1.4280 to 1.4430 (We set to short at 1.4445-65, stop loss at 1.4515, target at 1.4330 to 1.4280)
USDJPY: Foreign direct investment flows to Colombia, Panama and South Korea could get a bump up in coming years if long-awaited trade pacts with the U.S. finally go through.
Congressional negotiators broke a weeks-long stalemate on trade pacts with the three countries, likely clearing the way for summer votes on the long-stalled deals, The Wall Street Journal reported on Tuesday. The U.S. has recently been slow to ratify free-trade agreements signed with the three countries as high domestic unemployment has made the subject a political hot potato.
While any free-trade pacts are unlikely to have an immediate impact on currencies and investment flows, the added boost from trade will help long-term economic growth.
We expect a range for today in USDJPY rate of 80.70 to 81.30 (We are currently shorting the pair at the market price 81.05, with a mini stop loss 81.45, target at 80.70 and 80.30)
