Greece;"Old" Plan "B" is launched, lower Eur, Equities to follow.

* German profile on Greece rescue plan increasing pressure on the Euro
Focus now on yield curves; with yet more European peripheral deflationary pressure unleashed and US yield curve steepening, the scene is set for a lower Eur/Usd still.

It seems the EU rescue plan for Greece is a copy of a German proposal presented three weeks ago. And as such, it is not really "new". Anyhow, the proposal is short on detail and will certainly mean severe hardship for the citizens of Greece. They are about to share the Latvian people´s experience. Question is, will the Greece citizens handle the hardship in a similar way? I doubt it. To me, civil unrest risks are higher in Greece.

EU politicians are hardly united, but more importantly, the ECB is voicing quite strong objections against any IMF led resue plan, emphasising an EU led solution. Markets will want more details on the proposal, translated into concrete action. I does not seem we will get it for the time being.



* Eur/Usd to go lower still
With a steepening US yield curve and longer end long term correlation to break up with the European ditto and Europe facing yet another wave of deflation initiated by Greece and upcoming fiscal budgetary measures for the other southern European PIIGS countries represented by Spain and Portugal, Eur/Usd should be heading lower still. The 1.30 level is within striking distance.


* Eur/Usd, US yield and equities
There has been a breakup there for a while now. However, I believe equities will play catch up. Ie equities will soon go lower. US yields will be important to watch as any move by the 10 year bond above 4% - 4.25% is likely to make many institutional investors consider scaling back on their equity holdings. With equity vols at close to pre crisis low levels, long equity puts seems an interesting proposition. The timing seems to be right. Famous last,,,,


* Usd/Jpy going higher
Japanese institutional flows to seek higher yields abroad post fiscal year end as Japan is going back to QE. Besides, majority of outflows during this fiscal year has been currency hedged by Japanese institutions, buying Jpy in the process. Going forward, due to the Japanese QE and the Usd strength, the FX hedging ratio may well be lower, meaning less Jpy buying.
The important 91 level in Usd/Jpy has broken to the topside. I go for a continuation towards the high nineties.




As usual, good luck.









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