29 June 2015 • Source: John J Hardy, Saxo Bank Syriza intransigence would be euro-negative Greek back off would be positive – though unlikely ECB may front-load more than originally planned JPY logs big gains on intense risk-aversion Hopes of snap election in Greece curbs euro losses Euro traders face extreme uncertainty this week depending on the direction the situation in Greece takes after the country was forced to implement capital controls over the weekend on the European Central Bank’s failure to increase the emergency liquidity facility (ELA) from Friday’s levels, a step that would have been necessary to cover accelerating runs on Greek banks. So Greek banks and possibly Greek markets will be closed all week, with severe limits on cash withdrawals. The market will remain even more nervous than before on headline risk this week as Syriza either maintains its position and we head toward the referendum (euro negative), or decides to soften its stance (unlikely after taking this step). The EU response is critical as well, though one wonders why they should blink now after not blinking as prime minister Alexis Tsipras and company decided to refuse the final compromise. Massive ECB efforts to counter the carnage across peripheral sovereign markets are a factor that could help the euro lower as well as we could be seeing even more significant “front loading� than the ECB already intended to implement to counter recent bond market volatility. As for FX reactions to this weekend’s news, the euro is obviously weak across the board, with the biggest reaction in EURJPY as the yen has suddenly retaken its past status as the go-to currency for extreme risk-off markets. This has even driven USDJPY to the brink of the key 122.00/121.50 support zone. For EURUSD, while we’ve traded below the key 1.1000 overnight, it will be about today’s closing levels, with a close below that level setting up risk for a further tumble toward the 1.0500 lows. Chart: EURJPY JPY has been the biggest gainer on the intense risk aversion in the wake of this weekend’s events – note the gap and that the current support came in at the high of the Ichimoku cloud and resistance is perhaps at the 200-day moving average up above 137.00. With perfect hindsight, Syriza’s failure to sign a deal makes some sense, as the entire raison d’être for this Greek government was to fight back against austerity, and a signing on the dotted line with its creditors on this deal, which had minimal concessions, would have also been a signing its own death warrant. As it is widely expected that Greek voters will vote in favour of the creditors’ terms this weekend, the reason the euro is not weaker still is the assumption that we will quickly see new Greek elections and new pro-EU leadership. As for comments from other notable observers of this situation: Mohamed El-Erian of PIMCO fame was out suggesting the high risk of a quick Greek exit because of the intolerable crush on the economy and social stability. But Mike Shedlock suggests that any Greek exit scenario, while quite probable, could prove a very long drawn out affair for geopolitical reasons as the US is dead set against Russia having any wedge to operate against the US/EU sphere of influence. The G-10 rundown USD: Playing second violin to the Japanese yen on the initial risk off, but should do well as a safe haven currency and if the key US data this week, especially the US employment report on Thursday, is supportive. EUR: Very fluid situation as the market awaits headlines and considers the likely outcomes for Greece and the EU periphery. Resistance in EURUSD comes in around 1.1130/35 (gap) while the “line in the sand� in sentiment terms is the 1.1000 area on the daily close. JPY: At the moment, the preferred go to currency as long as risk appetite is under pressure. This could deepen as long as risky assets are selling off, both in EURJPY and USDJPY, with the latter suffering a severe blow if we close below the 122.00/121.50 zone. GBP: Proving almost as strong as the US dollar as a safe haven from the euro, as we briefly traded below 0.7000 in EURGBP today. May take a back seat as a safe haven, however, as long as risk aversion is particularly intense. CHF: The upside here has been more muted than one might have thought likely, given the circumstance, though much of this is likely due to the Swiss National Bank quietly intervening to slow CHF appreciation here. The 1.0250 area is the next nominal support zone, followed, perhaps, by parity. AUD: Surprisingly resilient, given the circumstances and especially given the outright carnage in Chinese equities. Perhaps the USDJPY selling is keeping a lid on the potential for the dollar to serve as the preferred safe haven. CAD: Seems like weaker oil prices to start the week would put more pressure on CAD, perhaps the market simply not focusing on the action here. NZD: Largely sitting out the action here after wild swings overnight. In general, the kiwi is not a go-to currency in times of turmoil. SEK: Outperforming the euro, but only slightly as SEK is traditionally leveraged to the EU economy and risk averse markets prefer to steer clear of less liquid currencies. NOK: similar to SEK, only modest upside against the euro due to weak risk appetite. Economic Data Highlights China cut the 1-year lending rate 25 basis points to 4.85% from 5.10% Japan May Retail Trade out at +3.0% YoY vs. +2.2% expected and vs. +4.9% in Apr. Japan May Preliminary Industrial Production out at -2.2% MoM and -4.0% YoY vs. -0.8%/-2.3% expected, respectively and vs. +0.1% YoY in Apr. Upcoming Economic Calendar Highlights (all times GMT) Norway May Retail Sales (0800) UK May Mortgage Approvals (0830) Euro Zone Jun. Economic/Industrial/Services/Consumer Confidence (0900) Germany Jun. Preliminary CPI (1200) UK BoE’s Haldane speech published (1400) US Jun. Dallas Fed Manufacturing Activity survey (1430) New Zealand May Building Permits (2245) UK Jun. GfK Consumer Confidence (2305) Australia May HIA New Home Sales (0100) New Zealand Jun. ANZ Activity Outlook/Business Confidence (0100) Japan May Labor Cash Earnings (0130)

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