Daily Report: Euro Broadly Lower on Greece and German Concern

Euro weakens broadly today as concern on Greece's fiscal health continues while there are rumors that German Chancellor Angela Merkel may resign after being accused by her own Christian Democrats of failing to show enough leadership. Nevertheless, the German government denied the rumors and said they're "just pulled out of thin air." Yen continues to strengthen across the board on concern that China banks are reducing property loans and there will be more measures from the Chinese government to counter asset bubbles and cool down growth. Dollar is mixed in general while crude oil and god are staying in tight range.

Technically, Euro is set to weaken further in general. EUR/USD's break of 1.4456 minor support suggests that recent recovery from 1.4217 has completed already. EUR/GBP's break of 0.8833 support has also confirmed that whole fall from 0.9410 has resumed. Besides, EUR/JPY's break of 131.24 support confirms that rise from 127.50 has completed at 134.36 on a small head and shoulder top pattern and deeper fall should be see to 127.50 support. EUR/AUD is also set to take on recent low of 1.5522 and then 2007 low of 1.5472.

Dollar index is still struggling around 38.2% retracement of 74.19 to 78.45 at 76.82 and intraday bias remains neutral for the moment. Deeper correction cannot be ruled out and a break of 76.60 might send dollar index lower towards 61.8% retracement of 74.19 to 78.45 at 75.81 on next fall. However, even in such case, we'd expect strong support from this fibonacci level to conclude the correction. On the upside, though, a break above 77.30 minor resistance will now be the first signal that correction from 78.45 has completed and will turn focus back to 78.19 resistance for confirmation.

On the data front, inflation data will be a main focus today. Swiss combined PPI is expected to rise 0.1% mom in December. Eurozone CPI is expected to revised up to 0.3% mom, 0.9% yoy in December with ore CPI unchanged at 1.0%. US CPI is expected to rise 0.2% mom, 2.8% yoy in December with core CPI up 0.1% mom, 1.8% yoy. ALso, US empire state manufacturing index is expected to rise to 11 in Jan. Industrial production is expected to rise 0.6% in December. U of Michigan consumer sentiment is expected to rise to 73.7 in January.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 131.41; (P) 132.53; (R1) 133.35; More.

EUR/JPY's break of 131.24/50 support zone confirms that whole rise from 127.50 has completed at 134.36, ahead of 134.54 resistance, on a small head and shoulder top pattern. Intraday bias is on the downside and further decline should be seen towards 126.88/127.50 support zone. This also affirms that recent price actions from 126.88 are consolidative in nature and fall from 138.47 is still in progress for another low below 126.88. On the upside, above 132.38 minor resistance will turn intraday bias neutral first but risk will remain on the downside as long as 133.62 resistance holds.

In the bigger picture, at this point, EUR/JPY is still bounded in medium term range between 126.88 and 139.21 and outlook remains neutral for the moment. On the downside, a break of 126.88 support will revive that case that medium term rebound from 112.10 has completed at 139.21 already and down trend from 169.96 is resuming. In such case, we'd expect deeper fall to 112.10 and beyond to resume the long term down trend. On the upside, however, break of 134.54 resistance will revive that case that recent price actions are merely consolidations to medium term rise from 112.10 already and another high above 139.21 should be seen before EUR/JPY tops.

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