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Daily Report: Euro Steady after ECB Rumor, Focus Turning to Greece Print E-mail
Action Insight Archives | Written by | Aug 21 12 05:41 GMT

Daily Report: Euro Steady after ECB Rumor, Focus Turning to Greece

As the rumor of ECB's plan to cap yields faded, the common currency remains bounded in range against other major currencies. Focus will shift to Greece first as prime minister Samaras will meet with Luxembourg Juncker tomorrow and then German Merkel and French Hollande later in the week. It's reported that Greece is detailing a EUR 11.5b austerity plan in 2013/14 before meeting with the European leaders and targets to get troika approval by mid-September. The outlook will be first be presented to Juncker and is believed to include broad cut in pension benefits as well as wage reductions and layoffs in the public sector. In addition, Samaras is expected to lobby the leaders in support Greece's proposal of extending the fiscal adjustment program for two years as the country is facing deepened recession.

Talking about fiscal adjustments in Eurozone, Moody's said in a report that the work is "is at best only half complete." It compared the imbalances faced by some weaker Eurozone states to a "similar crisis and adjustment period" in Sweden and Finland in early 90s. Moody's noted that "in comparative terms, the contractions of the two Iberian countries and of Italy are relatively shallow (at least so far), approaching that of Sweden, while those of Ireland and Greece (one must note that the latter does not seem to have bottomed out yet) are more similar to the deeper and longer Finnish contraction." It warned that "there is a considerable degree of implementation risks associated with those (reform) programs, which can only be mitigated by significant domestic commitment and ownership of the reform process, eventually shored up by continued external reform anchors and possibly support." But it also emphasized that history in Sweden and Finland showed that "success, with policy commitment and effective implementation, while difficult, is indeed possible."

Aussie is mildly firmer today after RBA minutes. The minutes for the August meeting contained few surprises, as most of the issues were covered in the RBA quarterly Statement on Policy which was released several days after the August meeting. The minutes confirmed that the RBA acknowledged the peak in mining capex and the improvement in the outlook for housing construction from 2H2012. While keeping the cash rate unchanged at 3.5%, policymakers delivered no hints on the next move. Yet, we believe another rate cut would be announced in the fourth quarter as unemployment will probably increase due to tight financial conditions and fiscal consolidation. More in RBA Minutes Gave No Hint On The Next Rate Decision.

On the data front, Japan all industry index rose 0.2% mom in June, inline with expectation. UK public sector net borrowing is expected to drop GBP -4b in July. CBI trends total orders are expected to drop to -9 in August. Canadian wholesale sales are expected to rise 0.3% mom in June.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 97.73; (P) 98.04; (R1) 98.35; More

With 4 hours MACD crossed below signal line, intraday bias in EUR/JPY is turned neutral first. Another rise remains mildly in favor with 95.71 support intact. Above 98.40 minor resistance will turn bias back to the upside for 38.2% retracement of 111.43 to 94.11 at 110.72 next. However, break of 95.71 will indicate completion of such choppy rebound and argue that fall from 114.34 is resuming for another low below 94.11.

In the bigger picture, there is no clear sign of reversal yet and the down trend from 2008 high of 169.96 could extend further lower to 90 psychological level. However, as we're favoring the case that pattern from 139.21 is a falling wedge with bullish convergence condition in weekly MACD. Fall from 111.43 should be the last leg in such pattern. Hence, we'll expect strong support above 88.96 to contain downside, form a major bottom and bring reversal. So, focus will remain on reversal signal. Meanwhile, break of 101.62 resistance will be an early sign of medium term bottoming and will turn focus back to 111.43 key resistance for confirmation.

EUR/JPY 4 Hours Chart

EUR/JPY Daily Chart

Economic Indicators Update

MT Ccy Events Actual Consensus Previous Revised
01:30 AUD RBA Minutes
04:30 JPY All Industry Activity Index M/M Jun 0.20% 0.20% -0.30%
08:30 GBP Public Sector Net Borrowing (GBP) Jul -4.0B 12.1B
10:00 GBP CBI Trends Total Orders Aug -9 -6
12:30 CAD Wholesale Sales M/M Jun 0.30% 0.90%

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