Forex - Greece Far From Out Of The Woods, Despite Successful Debt Sale

Forex News and Events: This week’s sale of Greek debt has gone unequivocally well; with pension funds and insurance companies alike lapping up the chance to secure 10 year bonds at a mouth-watering 6.35% yield. Compare that with Spain’s similar 5 year offering yesterday which went for 3% and the fact that this yield represents a hefty 295 basis points more than comparable German debt, and it’s clear to see why investors oversubscribed by more than three times the face value of the offer (EUR16bn in bids for only EUR5bn on offer). But what is also clear is that Greece have had to pay up significantly on this chunk of debt (0.32% over their existing debt) and for a country needing to roll around EUR53bn in debt this year, it is certainly not yet the time to cheer the end of the crisis. Much has been made of the heroic extent of austerity measures proposed and how tremendously difficult it will be for Greece to live up to such promises over such a long time horizon. Some of the more frivolous media suggestions have extended to the idea of Greece selling some of its islands in order to plug the debt hole. But the fact is that Greece’s gluttony and lack of fiscal discipline during the boom years has now reached a juncture where a one off crash diet is not going to do the trick. For its long-term survival within the Eurozone, Greece needs to make lasting structural reforms to meet the demands of keeping up with the rest of the Euro area.   The German government has been quick to stress all week that today’s scheduled meeting between Merkel and Papandreou will not precipitate in any offer of aid from Germany to Greece. Germany’s Economics Minister went even further today; underlining the point that each EU country has to take care of its own affairs putting, and putting in no uncertain terms that the German government would not be offering Greece “even one cent”. One can’t help but think that the harsh tone of these comments is tinged by soured relations related to Greece’s ill-thought out dredging up of Nazi grievances in recent weeks. Greece is facing a difficult transition of cold turkey ahead, and if Germany is any example to go by, it cannot expect much sympathy from its bigger Eurozone siblings.

Today's Key Issues (time in GMT): 11:00 EUR Germany: Factory orders % m/m (y/y) Jan exp: 1.3 (15.4) prev: -2.3 (8.4) 13:30 USD Change in nonfarm payrolls, thous Feb exp: -65 prev: -20 13:30 USD Unemployment rate, % Feb exp: 9.8 prev: 9.7

The Risk Today: EurUsd Despite the encouraging uptake of Greek debt this week, EURUSD is still finding it heavy going – and who can blame it after Moody’s latest downgrade of Deutsche Bank by two notches to AA1/C+. Now, the pair has slumped right back into its range territory below 1.3600, and notably, the price action in the past two days has carved out a bearish engulfing candlestick pattern on the daily chart ; a formation that tends to suggest the bulls have been exhausted by the bears, and further selling interest is likely to push the pair lower in subsequent sessions. The shadow of non-farm payrolls on the horizon means participation is probably going to be excruciatingly light this morning, so range trading will be the most rewarding strategy to pursue ahead of the release. Some support expected to come in around 1.3550, and sellers lurk around 1.3625 so we would use these levels to guide our short term trade entry. The bigger picture technical levels remain intact either side of today’s mini-range; on the topside 1.3700 -30 was the zone where we stalled last time, and above there the 1.3800 fibonacci level (50% retracement of 1.2457-1.5145). On the downside, 1.3425-44 area is the main cushion of bids ahead of 1.3090. GbpUsd Well the BoE meeting yesterday was a complete snooze, and the prospect of NFPs later means UK PPI is also unlikely to have much bearing on the currency. Instead, we take our cue from the fact that GBPUSD’s rally yesterday was unable to overcome 1.5140 resistance, which is highly suggestive that buying momentum does not have the legs to sustain a trend reversal just yet. Furthermore, the breach of the lower side of our rising wedge pattern discussed yesterday occurred at 1.5045 so we now expect a continuation of the 6 week downtrend, and aim for a re-visit of 1.4900 down below – our target is admittedly a little on the conservative side due to support expected just below there at 1.4857 (61.8% fibonacci retracement of 1.3505-1.7043). The back side of the rising wedge now comes in at 1.5100 which is likely to cap any rallies, then the upper bound of the current 6 week downtrend at 1.5210 presents a major challenge. UsdJpy Hawkish Bullard rhetoric combined with a rumoured spurt of Middle Eastern buying of USDJPY yesterday afternoon was enough to blow through the 1 week downtrend channel at 88.55, and the pair now looks to be threatening the stubborn upside resistance at 89.50. This 89.50 level has been bullet-proof since 25th Feb; so any break above may be an early signal of an impending correction higher. Much like EURUSD, the price action on the daily chart has formed an engulfing candlestick (albeit the bullish form in this instance), which will come as welcome relief to the bulls battered and bruised from recent JPY strength. Numerous resistance levels above will however make tough work of any rallies, with the 100 day moving average at 90.17, prior resistance and fibonacci level at 90.35 (38.2% of 84.83-93.77) and the 50 day moving average at 90.63. Nevertheless the NFPs later today certainly give us the potential catalyst for such a move, especially if there’s a shock positive print in the payrolls. Supports on the downside are eyed at 88.15 (yesterday’s lows), then 87.37 (last seen 9 Dec). UsdChf We still see very little directional bias for this pair, and instead look for a continuation of range trading within a slightly wider band than last week. The strong bounce off 1.0650 signals to us than decent buying interest continues down there, and the 1.0900 resistance above remains intact from the former range. If today's NFP sends us back down to the lows, next supports of note are 1.0605 (38.2% fib retracement of 1.0131-1.0898) and the back side of the former downtrend at 1.0510 (also coinciding with the 50% fib retracement level). The next topside resistances are seen at 1.0800, 1.0900 then 1.0980.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3850 1.5350 90.66 1.0980 1.3800 1.5255 90.18 1.0900 1.3735 1.5140 89.50 1.0800 1.3595 1.5035 89.30 1.0765 1.3444 1.4900 88.00 1.0650 1.3425 1.4857 87.35 1.0605 1.3300 1.4780 85.85 1.0520 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot