Forex - Waiting on Greeces New Austerity Package

Forex News and Events: Barring a bombshell from the Greek austerity press conference, we believe markets will stay relatively quiet ahead of the BoE, ECB and Fridays NFP. In this environment, we will be looking to play the daily ranges. Leaks of the announcement conference have spilled out, with media outlets citing Greek government sources, saying that the government has decided on $6.5 billion in extra austerity measures, decided to raise VAT by 2% to 21%, closing fiscal loopholes, and will be trimming salary bonuses by 30% in 2010. We are still doubtful over the long term effect austerity grandstanding will have on the EUR, especially after yesterday’s stark admission from the Greek PM in regards to “holes” in the budget and tax collection process in shambles. In the near term, new austerity measures suggested today will likely significantly increase the markets focus on the March 5th meeting between German Chancellor Merkel and PM Papandreou. Standard & Poor's said that it was "less pessimistic" on Greece than financial markets seem to be, the exact statement sounded more politically driven then data supported. The EUR and risk appetite have been gaining on the expected news buts surprisingly equity markets headed in the other direction. There are rumors and IMM reports which suggest there are some still very big short GBP and EUR positions (although the short EUR trade lost most its steam in late February, despite recent heavy media coverage) and a small rally in risk could lead to decent short squeeze. In Australia, the real GDP grew 0.9% q/q and 2.7% y/y in Q4 vs. 0.9% q/q & 2.4% y/y exp. Growth was slightly higher than we or the market were expecting, yet the positive news failed to translate into a stronger AUD. We suspect, as stated yesterday, that while the domestic economic conditions remains robust, the AUD and monetary policy will be underpinned by external factors such as China and Greece. While the yield differential should provide AUD some near term support, as we move closer to Q2 and other G10 central banks accelerate their tightening cycle, we will be watching for heavy erosion in AUD’s advantage. A wealth of data from the US should provide some range bound direction with ADP, ISM and Fed’s Beige book.

Today's Key Issues (time in GMT): 00:00 EUR Greece announcement on more austerity measures. 00:00 EUR Portugal parliamentary vote 2010 draft budget. 00:00 GBP BoE MPC begins two-day meeting. 07:00 EUR GER Jan retail sales, -0.5% m/m, -1.1% y/y eyed; last +0.9%, -1.8%. 08:53 EUR GER Feb PMI - services index, 51.7 eyed; last 52.2. 08:58 EUR Feb PMI - services index, 52.0 eyed; last 52.5. 08:58 EUR Feb PMI - composite index, 53.7 eyed; last 53.7. 09:28 GBP Feb PMI - services index, 54.9 eyed; last 54.5. 10:00 EUR Jan retail sales, -0.4% m/m, -1.6% y/y eyed; last unch, -1.6%. 13:15 USD Feb ADP employment, -100k eyed; last -22k. 14:15 USD Boston Fed President Rosengren (FOMC voter) speaks 15:00 USD Feb ISM non-mfg index, 50.5 eyed; last 50.5. 18:00 USD Atlanta Fed President Lockhart (FOMC non-voter) speaks 19:00 USD Fed Beige Book release.

The Risk Today: EurUsd We have enjoyed yet another cycle in our 200+ pip range trade in the past day, and now look to be edging closer towards the final trendline of the major 3 month downtrend channel (discussed yesterday); depending on what happens at this juncture we should get a good idea of whether this leg of the sell-off (that has played out since December) is complete, or whether a further shift down is coming. That major downtrend upper bound comes in currently around 1.3660 (within 5 pips of the day’s highs), and predictably, the first encounter has seen the pair retrace lower to 1.3620. Nevertheless,the 14-day RSI has been gradually edging higher to 44, so if a subsequent re-test leads to a break above in the coming days, it would signal a significant shift to a correction higher. We would then look to fill our pockets with EURUSD down here looking for a first target of 1.3850 pivot level, and then 1.3950 (target of the triple bottom). Obviously, if the downtrend line holds and a break through our range lows (1.3425-44) plays out, there are not too many support levels over the precipice; 1.3090 then 1.2890 are the nearest ones of note. GbpUsd GBPUSD has managed to rebound strongly off trendline support since touching lows of 1.4783, so we have tentatively highlighted a very short-term uptrend channel within the dominant 6 week downtrend. This morning’s rally has rebounded from the top of this channel around 1.5070 (a level coinciding with technical levels from May 2009), and we expect further gradual recovery as the 14-day RSI recovers from its very oversold 23.5. There are likely to be a number of areas of selling pressure above however, with 1.5070 still intact, then 1.5190, 1.5350 major pivot level and the former flag break out level at 1.5580. As discussed yesterday, there are few areas of proven support below, but 1.4857 represents the 61.8% fibonacci level (retracement of 1.3505-1.7043), then we see 1.4780 lows from Monday before downtrend support now seen at 1.4660. UsdJpy After a tedious week of tight ranges in USDJPY, we may be on the brink of some welcome new developments for the pair. Overnight pressure pushed through our range lows of 88.75, and briefly punctured support below at 88.55 (4 Feb lows) to touch 88.48. Since then, the rebound higher has brought us into contact with a vibration of the 2 week downtrend channel at 88.90; but we note that recent trendline support/resistance has not been particularly useful in helping define price action. We do however believe that since the 75 pip range has been violated, there is an increasing likelihood that we see a decent move or new trend emerge, and if downtrend vibration resistance holds then expect that move to be on the downside. Next targets below include 88.25 (61.8% fib retracement of 84.83-93.77) and 87.55 prior lows not seen since December. On the topside the 100 day moving average now comes in at 90.20, backed up by 90.35 (38.2% fib retracement), 90.55 pivot level and the 50 day moving average now coming in at 90.73. UsdChf Very similar to EURUSD, USDCHF has been range bound over the past couple of weeks, though at current levels we see value in going long of the 1.0717 fibonacci support (23.6% retracement of 1.0131-1.0898), with the added reassurance that short term uptrend support comes in just below at 1.0710. Further levels on the downside have held up very well on prior tests, notably at 1.0695 and 1.0650, so we feel there is very good scope for a move higher to 1.0800 as a first target, then 1.0898 range highs beyond. Looking at the larger picture, we still prefer a bullish bias after the breakdown of the major downtrend that was in play from March 2009 until the beginning of February, and expect any retest of the back side of that trend channel (currently around 1.0530) will meet plenty of buyers. In the medium term we look for the reversal higher to continue through 1.0980 resistance and open up another look at 1.1170 above.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3850 1.5615 90.83 1.0980 1.3800 1.5580 90.22 1.0900 1.3695 1.5325 89.50 1.0800 1.3618 1.5029 88.73 1.0741 1.3444 1.4783 88.50 1.0717 1.3425 1.4715 88.25 1.0695 1.3300 1.4515 87.55 1.0600 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot