Safe haven flows sent USD/CHF to new record low today as it's now set to take on 0.8 psychological level. GBP/CHF and, to a lesser extent, EUR/CHF look set to follow. Gold jumps to new record high at 1624 while dollar index is hovering around 74 level, remains soft. Investors are clearly concerned with the lack of progress in US debt talk and that the possibility of US's first major default if Obama and the Congress fails to reach an agreement by the August 2 deadline. And further than that, there are talk that the budget deficit problem won't be solved by raising the debt ceiling and in the end, US would eventually suffer a downgrade. In any case, the development will be closely watched over the next few days.
Euro is relatively steady after 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".
Though, note that both Euro and Sterling are weak against the Swiss Franc. EUR/CHF's near term recovery should have finished last week at 1.1891 and is now heading back to 1.1404 record low. Meanwhile, GBP/CHF is even weaker and should take out prior record low of 1.3038 sooner.
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.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.8129; (P) 0.8188; (R1) 0.8245; More.
USD/CHF drops to new record low of 0.8020 so far today and remains weak. Intraday bias remains on the downside and current decline should target 0.8 psychological level and then 100% projection of 0.8519 to 0.8081 from 0.8277 at 07839. On the upside, break of 0.8277 resistance is needed to signal short term bottoming or otherwise, we'll stay bearish even in case of recovery.
In the bigger picture, long term down trend from 1.1730 is still in progress and there is no signal of reversal yet. Such decline is expected to extend to 100% projection of 1.1730 to 0.9462 from 1.0065 at at 0.7797. On the upside, break of 0.8519 resistance is needed to be the first sign of medium term bottoming or we'll stay bearish in the pair.
Economic Indicators Update
|1:30||AUD||Producer Price Index Q/Q Q2||0.80%||0.50%||1.20%|
|1:30||AUD||Producer Price Index Y/Y Q2||3.40%||3.10%||2.90%|
|8:30||GBP||BBA Loans for House Purchase Jun||31.7K||31.3K||30.5K|