Dollar is notably lower against Swiss Franc as the week starts. The
deadlock in raising the US debt ceiling raised concerns for a default
in the country's credit rating and hurt market sentiment. U.S. House
Speaker John Boehner over the weekend claimed that a deal 'was never
really close'. The Republicans are not pushing a 2-stage process which
would involve an immediate boost to the limit and then policymakers
would continue to negotiate a long-term debt-reduction deal. While
Boehner stressed that it's 'not physically possible to do all of this
in one step', Democrats refused to accept short-term extension with
President Barack Obama threatening to veto such a measure. The
stalemate in the US Congress triggered S&P to warn of a possible
downgrade again. On July 21, the rating agency said that there's at
least 50% that US' AAA rating will be cut within 3 months if the debt
ceiling cannot be reached by August 2. the development this week will be
closely watched by all market participants.
Euro is relatively steady against news that Moody's cut Greek
government debt ratings three notches to Ca into junk territory. Moody's
noted that a default was "virtually 100%" even though the EU "proposed
debt exchanges will increase the likelihood that Greece will be able to
stabilize and eventually reduce its overall debt burden." Greece will
face "medium-term solvency challenges: its stock of debt will still be
well in excess of 100% of (gross domestic product) for many years and
it will still face very significant implementation risks to fiscal and
economic reform." Ireland Prime Minister Enda Kenny said over the
weekend that Ireland "does not need nor seek a default". Kenny said that
a default would be an "economic calamity" and would shut Ireland off
from "the private debt markets for even longer," risking "ongoing
funding of the state and could overnight close down vital public
services".
Australian PPI rose more than expected by 0.8% qoq, 3.4% yoy in Q2
but provided little support to the Aussie. Wednesday's CPI will be a
main focus and is expected to rise 0.7% qoq, 3.4% yoy, up from Q1's 1.6%
qoq, 3.3% yoy. Opinions on the next RBA move are mixed. The bank kept
rates unchanged since last November. An economic report released over
the weekend argued that RBA would hike three times in the coming year as
mining boom boosts the economy. Though, it's generally not expected to
happen in Q3 as global outlook remains uncertain. Nevertheless, note
again that back two weeks again, Westpac, one of Australia's largest
banks, did argue that RBA would cut rates by 100 basis point over the
next year.
Swiss Franc's strength is also seen against other major currencies as
the week starts. GBP/CHF's sharp decline today argues that last week's
recovery is finished at 1.3438 already. Also, GBP/CHF is still staying
comfortably inside the falling channel from 1.5183. We're cautiously
bearish for a test on 1.3038 low first. Break there will confirm down
trend resumption and should target 161.8% projection of 1.5691 to 1.4168
from 1.5183 at 1.2719 next.
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