Forex News and Events:
We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal, Trichet said. A statement made earlier, but reiterated by EU members of the G7 this weekend. In addition, EU members spent time trying to reassure non-EU members that Greece’s (Portugal ’s, Spain etc) fiscal problems can be solved without the help of external bodies such as the IMF. However, judging from recent price action, this rhetoric hasn't helped ease the markets concerns. Rumors and tittle-tattle continue to swirl around the sovereign credit issue such as the Bundesbank preparing a loan for Greece and secret ECB weekend meetings, all keeping EUR traders on their toes. ECB Economist Stark comments, that a new mechanism which would support individual EU countries was incompatible with current rules, weighted on the EUR, as many believe some sort of bailout or stability fund will be needed. CFTC data imply that traders continue to trim long risk correlated trades and have become negative on the EUR (net shorts against the USD rose to 43.7 from 39.5k, the largest short recorded by the CFTC since the EUR inception). The mixed US labor data released on Friday highlights a critical dimension to PIIGS fiscals’ worries. The fiscal strategy put forth by Greece and whole heartily accepted by the European Commission last week, hinges heavily on the global recovery, specifically in the US and China. Should these countries stagnate or potentially take another economic dip lower, significantly increases the probability that risk counties will be unable to reach their Debt to GDP cutting goals. We still expect concerns over the EU to weigh on the EUR and benefit the USD and JPY. However, with a light economic calendar till Wednesday we could expect bargain hunters to push risk correlated trades slightly higher. The G7 meeting, this weekend in Canada, proved to be a non-event, reinforcing the fact that this group lacks modern relevance. While no official communiqué was released, individually ministers referred to the October statement regarding FX. October’s wording said that Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate. Not quite the strong and assured guidance a very nervous market was hoping for.
Today's Key Issues (time in GMT):
08:15 CHF Retail sales, % y/y Dec 0.6 prior
13:15 CAD Housing Starts jan 180k exp, 174.5k prior
The Risk Today:
EurUsd Friday’s worse than expected non-farm payrolls were surprisingly well absorbed by the market considering the utter collapse in risk sentiment just a day prior; with EURUSD only tumbling as far as 1.3586 (dragged primarily by EURJPY) before consolidating back above the 1.3600 handle into the weekend. Although the 14 day RSI remains firmly entrenched in oversold territory around 24, we would respect the overarching bear trend still in play, and avoid the temptation to play this from the long side under the misguided instinct these are bargain levels. After the plunge through 1 month trendline support at 1.3750, we have seen two rebound rallies try and fail to overcome selling pressure coinciding with the prior trend line; so today expect that cap to come in around 1.3700-10, with the 1.3750 level just beyond expected to provide significant resistance. The next downside targets eyed are the post-NFP lows of 1.3586, then 1.3510 (next vibration channel support), followed by 1.3484 (61.8% fib retracement of the 2009 rally).
GbpUsd Contrary to the bearish tone of most other currency pairs today, this morning’s GBPUSD sell-off to 1.5535 lows this morning has actually given us some incentive to go long the pair looking for a correction higher. The enduring GBP-bearishness that has pervaded the market over the past year may actually benefit GBP now; the 14-day RSI is (like many others featured) in oversold territory at 28, but in addition, the 12 month uptrend support now comes in below at 1.5520, backed up by 1.5315 prior technical support and 23.6% fib retracement of the sell-off 2.1161-1.3507. A significant barrier however is likely to be the selling interest lurking at 1.5730, but beyond there is plenty of room before next overhead levels at 1.5835 and 1.6000.
UsdJpy USDJPY is currently consolidating in symmetrical triangle formation after the knee-jerk risk aversion sell-off seen after Friday’s payrolls failed to break fresh lows beyond the 88.55 floor seen a day before. Taken from the widest point of the triangle, the target for a break-out would be 150 pips either side –approximately 90.80 on the topside (coinciding nicely with the upper bound of the 1 month downtrend today),or 87.50 for a break to the downside (prior pivot level). Even if we do see a break out to the topside however, we would caution that selling interest is expected around 90.30 levels; an area that corresponds to the back side of the prior downtrend channel, and the 50% fib retracement of 84.83-93.77. For now, weak support expected at 88.25 (61.8% fib retracement), but given how the price action last week seemed to slice through these fibonacci levels like a hot knife through butter, we think the only notable support will be below there at 88.00 (major trendline support).
UsdChf USDCHF now looks to have convincingly breached its 11 month downtrend, and from here the pair should find significant buying interest below at 1.0600-20 area (coinciding with the back of the prior trend line and the major pivot level). In the shorter term however, we note that the 14 day RSI is still teetering in overbought territory at 70, and the quiet economic release schedule means a dearth of obvious catalysts so there could be a phase of consolidation to come. From here, we prefer looking for any dips back towards 1.0600 as an opportunity to buy, with noext overhead resistance not due until 1.0800 levels, and thereafter 1.1000.
Resistance and Support
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|