In the early stages of the week, price action seems to be favoring the US Dollar and risk aversion flows, with markets perhaps getting spooked by some comments from the IMF that the global economy is “one shock away from a crisis.” The situation on the Eurozone periphery has certainly escalated, and Greece’s restructuring of its massive debt could be one of those very things that the IMF is referring to when talking about being a shock away from a crisis. Investors who were told that they would not lose any money on the Greece restructuring are now hearing talk of haircuts of between 50-70%, and this in conjunction with a Finnish government that has vowed to stop the Portugal bailout, and Irish bank downgrades, has forced some relative weakness in the Euro on Monday thus far. Meanwhile, China has once again stepped in to tighten policy through yet another raising of the reserve requirement ratio by 50bps. Elsewhere, another potentially risk negative theme weighing on sentiment this week is the situation in the MENA region which could lead to a further rise in oil prices and severely hamper global recovery prospects. Moving on, we continue to focus on the short-term developments in the antipodean currencies which remain very well bid and trade by multi-week, and multi-year highs against the US Dollar. However, while these currencies have been very well bid, we contend that they are on the verge of a major corrective pullback in favor of the US Dollar. A combination of cyclical studies and worrisome fundamentals (some highlighted above) could start to weigh more heavily going forward. Moreover, on top of the broader risk averse themes in the global macro markets, both New Zealand and Australia have been forced to respond to some serious natural disasters which inevitably will negatively impact growth forecasts over the medium-term. Most recently, the Ernst & Young Capital Confidence Barometer highlights this fact, showing the Australian manufacturers are predicting a gloomy future. In New Zealand, data has also not been Kiwi supportive, with the latest inflation readings coming in softer than forecast. The New Zealand Dollar has actually been one of the most technically overbought currencies on the daily charts, and we have been quite taken with price action in NZD/USD which has put in a remarkable 21 consecutive days of daily closes higher than the previous daily low. This is a trend that should be very close to an end, and after moving some 10 big figures over the course of a month, showing a severely overextended RSI, and finally taking out psychological barriers by 0.8000, the risks for a major pullback seem to be good. We are actually short from 0.7945, and will look for a daily close below 0.7925 on Monday to confirm bias and accelerate declines. On the data front, things have been extremely quiet, and outside of the softer New Zealand CPI, the only other notable release came in the form of UK Rightmove house prices which nudged a little higher. Looking ahead, the economic calendar picks up a bit in North American with NAHB housing data and Eurozone consumer confidence the stand out releases. On the official circuit, Fed Fisher is slated to speak on two separate occasions while Fed Bullard is also on the docket for Monday. US equity futures and oil prices are tracking a good deal lower ahead of the North America open, while gold is marginally offered.

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