Forex Journal

News and Events:

Events in Europe continue to pressure risk appetite at the opening of the week. Asian regional equity indexes were severely underwater, while European stocks are not fairing much better. FX was in pure risk off mode, with EURUSD slipping below the 1.4000 handle and our barometer for risk appetite AUDJPY falling sharply to 85.71 from 87.15. EURCHF dropped to new all time lows hitting 1.2348. Pressure began to build Friday afternoon when the credit agency Fitch downgraded Greek debt to B+ from BB+, leaving its outlook set to negative watch and bringing its ratings on par with S&P and Moody’s. Greek 10 yr bond yields jumped to a new record high since the launch of the EUR, closing at 16.18%.

While on a Norwegian Foreign Ministry’s website there was a statement which suggested that Greece had yet to meet its 50% of funding obligations and therefore the Scandinavian nation would suspend €30bn of development funds. This come on a series of events from the scandisk that hint their appetite to support European peripherals is limited. And from perhaps one of Europe’s biggest supports, French Finance minister (and leading contender for the IMF position) Christine Lagarde said that Greece is close to bankruptcy and advocates greater privatization. We see the issue of privatization as a critical input to the peripheral developments.

This is one of those issues where economy and society collide and given the social unrest seen in Spain, Greece and Italy in recent days is the x-factor in this crisis. The people are introducing a level of uncertain that truly worries traders and policy makers alike. As illustrated by the recent events in MENA, society behavior in notoriously difficult to model yet perhaps the strongest force in financial markets. On this note, initial results show that Spain’s center right popular party won 36% and incumbent socialist won only 28%, illustrating the people's dissatisfaction with the current governments. Spain has been a shining example within the EU for fiscal consolidation (providing Spanish yields as a buffer from the capital markets distrust) but there are growing concerns of fiscal slippage. With massive unemployment for people under 25 and significant deviations in regional economic data, we expect to see substantial variations as local politicians look to hold power by easing economic stress though looser fiscal policies.

The Euro economic data calendar this week is not expected to hurt the EURO, with figures coming in remaining broadly in line. However, markets have indicated that in mid July, Greece will run out of money and as we creep closer to this date with no sustainable resolution, participants will be increasingly uncomfortable with being in long FX risk.

Today Key Issues:

• 08:28 EUR German Manufacturing PMI Prior 62 Exp 61
• 08:28 EUR German Services PMI Prior 56.8 Exp 57.0
• 08:30 SEK Swedish Unemployment Prior 8.1 Exp 8.0
• 08:58 EUR Euro zone Manufacturing PMI Prior 58.0 Exp 57.0
• 08:58 EUR Euro zone Services PMI Prior 56.7 Exp 57.0
• 08:58 EUR Composite PMI Prior 57.8 Exp 57.3
• 09:00 EUR Rehn speaking
• 09:50 EUR Tumpel Guggerell speaking
• 10:30 EUR BOS Governor Ordonez speaking
• 14:00 EUR Bini Smaghi speaking
• 14:00 USD Bullard speaking on the state of the US economy

The Risk Today:

EurUsd EURUSD looks in real trouble at the start of this week, as the pair has dropped through the recent lows and now negated support at 1.4000 (hitting a low of 1.3996). Adding to the bearish outlook, there is a bearish engulfing candlestick pattern visible on the daily chart which suggests further losses may be due today. Support from here stands at 1.3980 (17-18 Mar lows), 1.3966 (100-day moving average), 1.3856 (15 Mar low), 1.3744 (2 Mar low), 1.3705 (24 Feb low) and 1.3671 (200-day moving average). With 1.4000 key support gone, we now feel that selling on rallies is the best strategy to employ; key resistance levels stand at 1.4346 (20 May high), 1.4441 (9 May high), 1.4500 psychological resistance, 1.4588 (6 May rebound high) and 1.4764 (former support last seen in early May).

GbpUsd Much like EURUSD, GBPUSD has been dragged lower over the past couple of sessions, and today we expect further bearish sentiment to challenge the key 1.6092 support seen on 5 Apr. As discussed last week, we waited until seeing the rebound to 1.6250-70 before scaling into a short position, and for now we maintain our stop around 1.6330. Our target on the downside is just ahead of the first support 1.6092 (5 Apr low), however should the bears overshoot this level, next supports are seen at 1.6000 (psychological support), 1.5973 (1 Apr low), 1.5937 (28 Mar low) and the hugely significant 200-day moving average 1.5935. Resistance levels are seen at 1.6280-90 (where the upper edge of the current 3-week downtrend channel comes in), 1.6309 (13 May high), 1.6380 (12 May high), 1.6517 (11 May high), and 1.6574 (4 May high).

UsdJpy The floor of support around 81.50 in USDJPY gave way this morning, allowing the pair to dip to lows of 81.32; however the key level to watch today in terms of the longer term direction of USDJPY will be the 3-week uptrend line which comes in around 81.25-30. For the time being, we trust that the uptrend remains valid and therefore expect buyers to materialize around 81.25-30 to keep the pair elevated. Key resistance levels above now stand at 82.24 (19 May high), 82.50-55 (upper edge of current uptrend channel), 82.71-78 (200-day moving average and 27 Apr high), 83.26 (18 Apr high), and 83.79 (15 Apr high). If instead the trendline support is negated, then watch for next supports to come into play around 80.95 (18 May low), 80.16 (10 May low), 79.57 (5 May low), 78.26 (17 Mar low), and the all-time low 76.40.

UsdChf The overall trend for USDCHF remains bearish, but progress has been shallow with frequent corrections; meaning that despite touching new lows of 0.8748, we’re currently back at very similar levels to where we were on Friday morning (0.8825). As a reminder, we are short at 0.8800 after seeing the activation of a head & shoulders pattern, and have calculated a target on the downside of approximately 0.8660. Supports from here stand at 0.8748 (Friday’s low), 0.8708 (10 May low), and 0.8676 (6 May low). Below our 0.8660 target the only support remaining will be the all-time low 0.8554 (recorded on 4 May). On the topside, next resistance comes into play at 0.8883 (17 May high), followed by 0.8941 (16 May high), 0.9011 (19 Apr high) and 0.9105 (11 Apr high).

ACM FOREX

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