Greece Increases Anti-Europe Rhetoric as the Euro Area Gives an Ultimatum
Greece continues to dominate the headlines as Tsipras and Varoufakis refuse to back down from demands to renegotiate debt. In keeping with election promises, Tsipras in comments yesterday stated that the government will "break oligarchs’ hold of power in Greece.” In direct threat to the European Union Varoufakis warned in the most explicit remarks yet that the "euro will collapse if Greece exits.” He pointed to the severity of problems faced by other core members of the Eurozone including Italy and Spain and the fact that if one country leaves the monetary union, others are likely to follow. This would invariably shatter confidence in the Eurozone and leave the bloc spinning out of control in efforts to regain credibility.
Last week’s payroll optimism has failed to stimulate a bounce in equities as concerns about the Eurozone and China keep risk sentiment depressed. The U.S. nonfarm payroll figures crushed expectations of 230,000 jobs added, printing at 257,000 payrolls gained in January. Most interesting was the revision higher in the November figures which rose from 353,000 to a revised 423,000. However, there were some questions about the latest data from the Bureau of Labor Statistics after it counted job losses in the energy sector at 1,900 versus the announced 18,000 layoffs. Oil prices remain elevated as the rig count continues to fall, contracting 25% in the last 9-weeks. Gold prices dipped dramatically into the close on Friday, diving to 1228 before rebounding to just above support at 1238 as the dollar soared following the payroll announcement.
China has been experiencing further cyclical weakness as evidenced by the latest trade balance data and reserve ratio requirement cut. Last week, the People’s Bank of China announced a reduction in the reserve ratio requirements in an effort to stimulate lending and reduce friction in the credit markets. Liquidity conditions have been deteriorating, hence the latest move to let banks free up existing capital for lending to the real economy. This preceded the latest data which pointed to plunging imports that led to the biggest trade surplus in Chinese history at $60.3 billion. Imports tumbled nearly 20% year over year in January with exports contracting 3% year over year. The economy appears to be largely reversing despite the best efforts to stimulate lending and growth from the Central Bank and Central Planners.
USDCHF Horizontal Range Trading Opportunity
Last Friday’s payroll data saw the U.S. dollar rise modestly against the Franc as the Swiss National Bank continues to actively intervene in the Franc to keep it artificially weak. However, with EURCHF trading within the target range it is likely that the pair will remain range-bound in the near-term as the Swiss National Bank becomes more comfortable with its 1.05-1.10 EURCHF trading band. This means USDCHF is unlikely to break outside the range unless there is a major fundamental shift that sees the Euro plummet. Any move to let Greece go could see USDCHF soar outside of the range and any move above resistance at 0.9316 or move below 0.9170 should be treated as a breakout trade with reward set to 85-100 pips. Otherwise, the main strategy should be to short the top of the range and take long positions at the bottom of the range.
Wishing you a successful trading day,
NetoTrade Analysts Team