Mid-Day Report: Speculation on Greece Bailout Lifts Euro

Euro's recovery extends further today as the common currency is lifted by speculation of a bailout package from EU for Greece. The speculation started when ECB President Trichet left Australia earlier than planned to attend a council meeting on Thursday. And it's speculated that a deal for Greece bailout would be closed during the meeting. Markets elsewhere are generally in consolidation mode with dollar continue to trade with a soft tone. Commodities are generally higher with crude oil and gold pressing 73 and 1180 respectively. The greenback will possibly continue to be soft for a while as markets digest recent sharp gains.

One thing to note is that while Euro recovers against dollar and sterling, it's not that strong against commodity currencies. EUR/AUD is indeed dropping slightly after failing below 1.5967 resistance last week. While downside momentum of the cross is clearly diminishing with bullish convergence condition, there is still not sign of reversal yet with 1.5967 resistance intact. Recent down trend is still in favor for another low below 1.5416.

On the data front, German CPI was finalized at -0.6% mom, 0.8% yoy in January. Trade surplus narrowed slightly to EUR 16.7B in December. UK trade deficit widened to GBP -7.3B in December. RICS house price balance unexpected rose to 32% in January. BRC retail sales monitor dropped -0.7% in January.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0686; (P) 1.0729; (R1) 1.0775; More.

USD/CHF's pull back from 1.0793 is still in progress and drops to as low as 1.0654 so far. Further decline could still be seen to 4 hours 55 EMA (now at 1.0612) but after all, downside is expected to be contained by 1.0497/0640 support zone and bring rally resumption. Above 1.0745 minor resistance will flip intraday bias back to the upside. Further break of 1.0793 will bring rally resumption to medium term trend line resistance at 1.0921 next.

In the bigger picture, medium term correction from 1.2296 should have completed with three waves down to 0.9916 already. Current rise from 0.9916 is tentatively treated as resumption of the long term up trend from 2008 low of 0.9634. Sustained break of mentioned medium term trend line resistance (now at 1.0921) will further affirm this case and should target 161.8% projection of 0.9916 to 1.0506 from 1.0131 at 1.1086 next. On the downside, break of 1.0131 support is needed to invalidate this view. Otherwise, another rise is still expected even in case of deep pullback.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box