Mid-Day Report: Euro Pares Gain on Profit Taking, Awaiting Greece Talks

European major currencies and stock indices retreat sharply today and traders lighten of positions on profit-taking, ahead of weekend. Greece enters into the third day of discussion with private creditors on the so-called debt swap deal that's essential to help the country get through the important March 20 bond resumption date. There is some optimism that Greece and private sector would finally agree this week but this is far from guaranteed. And Euro's corrective rebound could quickly reverse should Greece disappoints the market again.

Greece has also begun talk with troika, the inspection team from EC, IMF and ECB today to secure the next bailout loan. . A Greek official said that most of the emphasis would be on "structural reforms" and the steps needed to boost the economy. Attention would also be on another EUR 12.5b of austerity to narrow budget deficit over the next four years.

According to a draft document obtained by Reuters, the combined capacity of the temporary EFSF and the permanent ESM would be unchanged at EUR 500b. The size of the fund would be reviewed in March and could be raised once it's operational. Also, the bailout fund would made only available to states which signed the EU budget pact. EU finance ministers are expected to approve the treaty for establishing ESM on January 30.

Data released today saw Canadian CPI unexpected dropped -0.6% mom in December and dropped yoy rate down to 2.3% versus expectation of 2.8% yoy. Core CPI also unexpectedly moderated to 1.9% yoy versus expectation of 2.2% yoy. HSBC China manufacturing PMI stay improved slightly to 48.8 in January. However, as HSBC said, the "third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further, following the sharp drop of 4Q GDP to a three-year low at 8% on a q-o-q seasonally adjusted annualized basis." Australian import price rose 2.5% qoq in Q4, much stronger than expectation of 0.6% qoq. Japan all industrial index dropped -1.1% mom in November.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 99.00; (P) 99.52; (R1) 100.51; More

EUR/JPY rises to as high as 100.33 earlier today and touched mentioned target of 38.2% retracement of 105.54 to 97.03 at 100.28 before retreating mildly. With 98.54 minor support intact, rebound from 97.03 short term bottom could extend further higher to 101.04 support turned resistance. But still, near term outlook will remain bearish as long as 102.48 support turned resistance holds and recent decline is still expected to continue. Below 98.54 minor support will flip bias back to the downside for retesting 97.03 low.

In the bigger picture, current fall from 123.31 is part of the down trend from 2008 high of 169.96 and should target 100% projection of 139.21 to 105.42 from 123.31 at 89.52. At this point, we'd anticipate strong support there to bring at least a rebound attempt, as it's close to 88.96 all time low as well as100% projection of 123.31 to 100.74 from 111.57 at 89.00. Though, a break of 111.57 resistance is needed to be the first signal of reversal. Otherwise, we'll continue to stay bearish in the cross even in case of rebound.

Economic Indicators Update

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