Daily Report: Euro Retreats Mildly on Greece Stalemate

Euro retreats mildly after IIF has made the "maximum" debt swap offer but was rejected by Eurozone finance ministers. As Dutch Finance Minister Jan Kees de Jager said the offer would leave's debt "substantially above 125% of GDP in 2020, missing the target of 120% of GDP. Luxembourg Prime Minister Jean-Claude Juncker said that the Greek program is "off track" and he demanded new coupon rate to be below 3.5% until 2020 and below 4% over the full 30-year period. IMF also raised the concern that the proposed plan would leave Greece with higher than expected debt burden. Greece Finance Minister Evangelos Venizelos remained optimistic that there was "very constructive cooperation with private sector" and they're "ready to finalize the procedure on time." Venizelos expects to present a formal offer to creditors by February 13.

IMF Managing Director Christine Lagarde urged European officials to raise the bailout fund and build a larger "firewall". Lagarde said that "substantial real resources" needs to be added by doling the temporary EFSF into the permanent ESM. Also, she proposed fiscal risk-sharing to deepen Eurozone's integration, including "euro-area bonds or bills" and debt redemption fund. Meanwhile, it's reported that Germany could be open to combining the capacity of EFSF along with ESM starting in July and run the two funds in parallel.

BoJ left rates unchanged at 0-0.1%, and it's asset-buying program at JPY 55T, as widely expected. In the accompanying statement, the bank noted that economic activate has been "more or less flat" due to "a slowdown in overseas economies and the appreciation of the yen". 2011 fiscal year growth forecast was lowered to -0.4% contraction while 2012 projection was lowered from 2.2% to 2.0%. 2012 and 2013 growth prospects were "broadly unchanged" and the bank expect economy to return to moderate recovery in first half of 2012 fiscal year.

BoE policy maker Adam Posen said that outlook has improved a little since BoE restarted quantitative easing back in October but the problems are not solved yet. Posen said a "big problem" is people's reluctant to "take on risk investments", including "the West" and Japan. Meanwhile Posen also noted that if new forecasts for growth and inflation justify, the bank would expand the GBP 275b easing program.

On the data front, Australia conference board leading indicator dropped -0.3% in November. Eurozone manufacturing and services POMI will be a major focus in European session. Canadian retail sales will be the main feature in US session.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.2910; (P) 1.2981 (R1) 1.3087; More.

With 1.2880 minor support intact, intraday bias in EUR/USD remains on the upside for 1.3076 resistance and above. Nonetheless, the current rebound from 1.2625 short term bottom is expected to be limited by 38.2% retracement of 1.4246 to 1.2625 at 1.3244 to limit upside and bring fall resumption eventually. On the downside, below 1.2880 minor support will flip bias back to the downside for retesting 1.2625 low first.

In the bigger picture, price actions from 1.6039 are unfolding as a consolidation pattern in the long term and is in progress. Fall from 1.4939 is a falling leg inside the pattern. It's hard to anticipate the length of a leg of any complex corrective pattern. Also, price actions would likely remain choppy and indecisive with misleading momentum indicator readings. . But after all, overall picture still favors deeper fall to 1.1875 support before the consolidation pattern completes. We'd at least prefer to see sustained break of 1.3145 support turned resistance before considering near term reversal.

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