Greece pushed closer to the edge

The choppy price action looks like it is set to continue with the Greek impasse still somewhat in place and investors exercising caution.

Source: Bloomberg

All the latest commentary from European leaders has had a fairly pessimistic tone to it regarding a potential deal. Eurozone leaders were somewhat disappointed in Greek Prime Minister Alexis Tsipras for not bringing any fresh proposals to the table at yesterday’s meetings. However, given a new finance minister has just been appointed, I’m not surprised Greece probably needs some time to work its way through some proposals.

European leaders have now given Greece until Friday to come up with some credible proposals. If these fail, a Eurogroup meeting will be held on Sunday to essentially decide Greece’s fate – this would most likely result in an exit.

Trade was risk-off in Europe with bund yields dropping, along with the single currency. EUR/USD finally slipped below the $1.1000 handle and traded to as low as $1.0916 before recovering a touch. This currency pair will be on high alert all week and traders will be looking for opportunities to react to headlines.

China puts commodities on high alert

The selloff in China continued, with wild swings through the session once again. Chinese mainland equities are now down 28% from their June peak and everyone is wondering what sort of ramifications this will have on the economy.

AUD/USD was one of the worst-performing currency pairs and ventured below $0.7400 in overnight trade. While many are blaming the RBA meeting for this, it’s also important to remember the US dollar index was up 0.6% as the greenback gained ground against most currencies. A strong JOLTS job openings reading helped underpin the greenback.

On a fundamental basis recent falls in iron ore and other commodities like oil doesn’t bode well for the AUD. Concerns about a bigger-than-expected China slowdown are also having an impact on the AUD as the market corrects.

The RBA said further weakness in the currency is likely and necessary. Focus now shifts to the FOMC meeting minutes and local jobs numbers due out tomorrow.

Iron ore in focus

Ahead of the open we are calling the ASX 200 down 0.4% at 5562. Yesterday was a strong day for the local market and we’ll be giving up some of those gains at the open. Despite yesterday’s efforts, we are clearly still range-bound with gains capped in the 5600 region. Until a time when growth and income stocks can rally in unison, the ASX 200 will struggle to knock through some of these barriers and outperform.

Iron ore is now at 49.60/t as China’s weakness weighs and this will see pure plays on high alert today. Stability in commodities will be crucial to how the ASX 200 trades through the session. A weaker AUD could also help stem the bleeding for some currency-sensitive stocks.

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