Forex - Pressure on Greece and EUR Ease

Forex News and Events: Risk appetite has been cautiously creeping back into FX markets at the start of this trading week. While a one day doesn’t make a trend, the broader environment is shaping up to support a sustained rally in risk sentiment. First of all, the passing of the new austerity measures by the Greek congress on Friday was a step in the right direction. While unions immediately called for a general strike for Thursday, we anticipate protests will be orderly and won-t spillover into larger social disruption, prompting Greece’s deficit trimming to stay on course. In addition, the Greek PM has been visiting Germany and France over the past few days drumming up, if nothing less then, strong political support and starting earnest discussions over a European version of the IMF (both positives). According to IMM data it looks as if pressure has been easing off the EUR as extreme short positions have begun to unwind and the extraordinary bearish sentiment fizzles out (balanced media coverage). In China, Governor Zhou of the PBoC made comments which hint to greater flexibility in the USDCNY. His key points were that the implicit peg to the USD since July 2008 was part of a special response to the global financial crisis. A return to the “managed float” exchange rate regime started in July 2005 would come and that any exit form the special situation would be managed prudently, since the global environment was still very precarious. China will release a slew of economic data this week, which should point to strong growth (good for risky cyclical currencies) and reacceleration in inflation. The EURCHF has been trading in a conspicuous pattern for the last few weeks (since last intervention), balancing on the 1.4620 SNB defined “line in the sand.” In recent weeks Switzerland’s economic data has been surprisingly positive with both growth signaling a strong recovery and inflation increasing at a healthy pace. While we are not expecting any shift in monetary policy on Thursday rate decisions, we could see a softening on policy commitments regarding the CHF. While the chance of the SNB completely removing the threat of FX intervention is remote, there is a chance the members provide a slight more dovish tone. We suspect that the offical support for the CHF is nearing an end and even a gentle shift should send the EURCHF lower. And on a final note, we believe conditions are nearly perfect for an extended period of JPY weakness. The better than expected NFP Friday could been seen as the catalyst with daily Ichimoku cloud resistance at 90.75 providing the next hurdle. In short, the BoJ has expressed their desire to flight deflation and JGB purchases seem the likely tool, improving risk trading environment (VIX stands at 18) and G10 central banks moving forward with tightening in Q2 creating attractive yield differentials.

Today's Key Issues (time in GMT): 06:45 CHF Feb jobless, sa and nsa, 4.1% and 4.4% eyed; last 4.1%, 4.5%. 07:30 EUR FRA February BdF survey. 08:15 CHF Jan retail sales; last +4.7% y/y. 09:30 EUR Mar Sentix index, -9.0 eyed; last -8.2. 11:00 GBP GER Jan total industrial production, +1.0% m/m, last -2.6%. 12:30 G10 Chairman Trichet hosts a BIS press conference 13:00 GBP BoE MPC member Kate Barker speaks 17:00 EUR ECB Executive Board Member Stark speaks on "The New Normal?

The Risk Today: EurUsd After the better than expected NFP on Friday, EURUSD’s sell-off could only push as far as 1.3531 before a surge of strong buying interest kicked in that has continued into the start of this week. We are now back testing the 1.3700 original range highs, but as of yet have not made a challenge on 1.3735 where the pair stalled on the breakout from Wednesday. For the time being the range still holds, but we believe the break of the former downtrend channel is a significant signal that a bullish reversal is due on this pair. Expect the break of 1.3700 to pause once more at 1.3735 until offers are exhausted, and then next stop above is likely to be 1.3800 resistance (and 50.0% fibonacci retracement of 1.2457-1.5145) Until a confirmed break out materializes there is very little to add to the discussion on this pair; main support levels on the downside still remain at 1.3425-44 area and 1.3090. GbpUsd It’s been third time lucky for GBPUSD which has finally managed to burst through 1.5140 resistance after the risk rally initiated on Friday. Admittedly, the move negates our rising wedge scenario suggested last week, coming within a whisker of 1.5200 resistance, but more significantly appearing to have breached the 6 week downtrend channel at 1.5160. If GBPUSD holds above this trendline, it could be the first sign of a reversal coming for the long suffering pair. The 1 week uptrend channel frames our short term view; with good selling interest expected to come in at the upper bound of 1.5278 (also coinciding with the 50.0% fibonacci level at 1.5274), and the lower bound at 1.5070 providing support. The 14-day RSI has crept back above the 30 level to 38 so far, which also suggests that bears are taking some of their pressure off the market, so we focus our sights on the levels above at 1.5350 and 1.5615 in extension. UsdJpy USDJPY took off like an absolute rocket post-payrolls, blasting through the important 89.50 resistance level with ease, and ensuring buying interest has continued into the start of this week. The 100 day moving average coming in at 90.63 has however made any further progress sticky, and the high so far today of 90.68 was within 10 pips of the back side of our former uptrend channel from early February. This trendline now comes in at 90.79 so expect sellers to come in again if we get close, but should the market manage to push above these technical headwinds around 90.70, there are clear skies above until 91.93 (200 day moving average) and 92.15 major resistance just beyond. Supports on the downside are eyed at 89.95 and then again at the 89.50 resistance-turned-support. UsdChf USDCHF continues its choppy consolidation at the start of this week, with the 1.0650 lower bound of the range still containing any sell-offs and 1.0800 providing an intra-range area of resistance. Overall, the pair remains on a mildly upward trajectory, with the 50 day moving average coming in below at 1.0541 which should attract buyers if the 1.0650 range lows break down. On the topside the 1.0898 ceiling remains the level to overcome if we are to see a continued push higher in the USD towards 1.0980, then 1.1170.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3850 1.5615 92.15 1.0980 1.3800 1.5350 91.93 1.0900 1.3735 1.5278 90.70 1.0800 1.3658 1.5162 90.17 1.0713 1.3444 1.5070 89.95 1.0650 1.3425 1.4857 89.50 1.0605 1.3300 1.4780 85.15 1.0520 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot