Daily Report: Euro Tumbles as EU Split on IMF Role for Greece

Euro is sold off sharply and recent developments suggest that European Union is split over who should provide the financial aids to Greece. German Chancellor Merkel's chief finance spokesman Meister said that "nobody apart from the IMF" has the instruments to push for Greece to restore its "capital-markets access" and attempting a Greek rescue without the IMF "would be a very daring experiment." The comments signaled a rift with Merkel and European leaders ECB Trichet, Luxembourg's Jean-Claude Juncker and France's Sarkozy. Also, it's believed there are now at least three other Eurozone nations that are open to the idea of calling the IMF if needed, including Finland, the Netherlands and Italy. EUR/USD is sharply below yesterday;s high of 1.3817 and is trading at around 1.3680 region while EUR/JPY failed 125 level and is back at 123.30. EUR/CHF also extended recent down trend and dived to 1.4460 level.

Dollar and yen are also lifted mildly on news that China is conducting stress test on yuan. Twelve industries were examined to assess the possible impact of yuan appreciations. Over 1000 companies were covered and the result will be announced before April 27. It's taken as a sign by markets that China may finally appreciate the yuan down the road due to intensified forex pressures.

Looking at the dollar index, it drew strong support from mentioned 79.56 cluster support (38.2% retracement of 76.60 to 81.34 at 79.52) and rebounded strongly. There is no change in our view that price actions from 81.34 are merely consolidation in the larger rally. With 4 hours MACD turned above and signal line, and 79.52/56 already met, intraday bias is turned neutral. Break of 80.41 minor resistance will be the first sign that such consolidation is already finished and will turn intraday bias back to the upside for retesting 81.34 high first.

The economic calendar is busy today. Swiss trade balance, industrial production, ZEW, EUrozone trade balance and UK M4 money supply and public sector net borrowing will be released in European session. In US session, main focus will be on CPI which is expected to moderate from 2.6% yoy to 2.3% yoy in Feb, with core CPI down fro 1.6% yoy to 1.4% yoy. Philly Fed survey, Leading indicators and jobless claims will also be released.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 123.62; (P) 124.34; (R1) 124.77; More.

EUR/JPY's rebound yesterday was limited below 125.22 cluster resistance as expected (38.2% retracement of 134.36 to 119.64 at 125.26) and falls sharply today. Intraday bias remains neutral for the moment. As noted before, choppy rise from 119.64 is treated as a correction in the larger fall only. Break of 123.01 minor support will indicate that such recovery has completed and will flip intraday bias back to the downside for retesting 119.64. Break there will confirm down trend resumption for 112.10 low. On the upside, even in case of another recovery, we'd still expect strong resistance at 125.22 to conclude the correction and bring fall resumption. However, decisive break of 125.22/26 will invalidate our view and indicate that stronger rebound is underway for 61.8% retracement of 134.36 to 119.64 at 128.73 next.

In the bigger picture, with 125.22 cluster resistance still intact, we're holding on the bearish view.That is, medium term rebound from 112.10, which is treated as a correction to long term down trend from 2008 high of 169.96, should have completed at 139.21 already, after multiple failure to sustain above 55 weeks EMA. Recent decline is expected to resume sooner or later to a new low below 112.10. However, note that decisive break of 125.22 cluster resistance will argue that recent fall might have completed already. Further break of 126.88 support turned resistance will argue that medium term rise from 112.10 might be still in progress for another high above 139.21 before completion.

Economic Indicators Update

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