Expectations High for todays Eurogroup Meeting
Forex News and Events:
It seems that no matter how much the market tries to convey the critical and fragile nature of the current crisis, European leaders again have pushed the crisis to the cliff's edge. Risk appetite firmed as cut China the RRR by 50bp and Greek cabinet has approved further austerity measures of €125mio over the weekend. EURUSD consolidated its gains around the 1.3200 but momentum has clearly stalled. Greece will be the key item on the agenda of the Eurogroup today and we suspect that appetite for new positions will remain light. With issues emanating from Iran, oil continues to gain. Should Brent close above $121.00 its would clearly indicate a broader push to all time highs of $127.00 . This price action should trigger further gains in beta currencies especially those attached to commodities. Watch for CAD perform well CADJPY above 80.80 targets 82.90, while USDNOK should test 5.600 support. With trader cautious ahead of the Eurogroup meeting and the US holiday watch for volumes to remain low and price action subdued.
Today, the Eurogorup is expected to meet to discuss and make the hard decision on Greek aid package. The recent news flow suggests that Euro zone finance ministers are expected to approve a second rescue package for Greece at a meeting later today. The deal should have been cemented by the report that Greece found all the extra austerity needed to drop spending by €325 million however this did not secure a bailout. Prime Minister Papademos said “a series of additional measures amounting to €125 million in order to complete the package of budget cuts worth 325 million euros.” These additional spending cuts should satisfy the Troika and get the go ahead from all 17 euro area countries finance ministers today in Brussels. So it really goes without saying that the markets total focus will be on today's Eurogroup meeting. The meeting is expected to start at 3.30 vs it usual 5.30, highlighting the importance. We should get clarity on whether the latest austerity measures have been enough to satisfy member nations--specifically Germany. We should also get some details on how the euro era is expected to fund the bailout. And finally, we shall hear the verbiage, like prior actions, which will indicate what the Greek government needs to implement before the first tranche of the second bailout is released. There might also be some details on how surveillance of the austerity measures might be increased. Clearly there is considerable concern that Greece is more than happy to pass legislation that should cut spending and debt servicing, but fall significantly short in the actual execution. There are also the Greek general elections in April that are a concern o the Troika as well as PSI. As with all the European crisis deadlines, there is considerable risk of disappointment built in. Last week we saw some heavy handed comments from every direction which highlighted just how divisive the Greek issue has become and that even with an agreement today, Greece is far from being in the clear. The recent numbers from the IMF suggest that even with the budget cuts and debt reduction, Debt to GDP will still stand at 129% in 2020, which is slightly above the Troika threshold of 120%. But no one is pretending that it will be the end of problems for Greece. Figures last week showed that Greek GDP fell by 7% in Q4 2011, significantly worse than forecast. If Greece is to be put on a long-term sustainable path, it needs to return to growth rapidly. However, critical structural and labor market reforms so far introduced have done little to improve that prospect--with unemployment climbing, gaining over 7% in 2011. On Friday, the ECB finalized an exchange of Greek debt for new bonds from the Greek government that would protect the central bank from incurring losses, from today's debt-relief operation. In regards to the PSI this was a major step backwards for generating goodwill, as the ECB has subordinated all other Greek bond holders to itself. Not only does this move negatively affect the current negotiations but by default subordinates all holders of euro zone sovereign debt. If a goal was for the ECB to encourage investors to purchase sovereign debt this debt exchange will have the opposite effect. Now every investor will think twice about by Eurozone governemnt debt and shift the risk premium on all paper higher.
Today's Key Issues (time in GMT):
00:00 USD Holiday Presidents day
09:00 NOK Olsen speaking
09:00 EUR M3 Prior 1.6 Exp 2.0
09:00 EUR Private sector loans Prior 1.0
10:00 EUR Barrosso speaking
15:00 USD Pending home sales Prior
15:30 EUR Euro group meeting
17:30 EUR Asmussen speaking
The Risk Today:
EurUsd EURUSD price action continues to make us dizzy, as the pair spent much of last week oscillating between 1.2970 and 1.3190 levels. Earlier in the week the pair lacked the momentum to really continue its 1-month uptrend, negating the uptrend channel and turning our previously bullish bias to bearish. However, Thursday – Friday we witnessed a sharp reversal as the pair aggressively headed back to the 1-month uptrend. We are likely to see a period of range trading ahead of the Eurogoup meeting. If the bulls try to rally again from here, we expect some supply to materialize at 1.3282 (13th Feb high), and 1.3320 (13th Dec, 27th Jan, 31st Jan & 1st Feb highs). Then above there we have clear skies until next resistance at 1.3461 (8th Dec high). Next supports in the cross hairs will be 1.3190/10 (intraday low), 1.3099 (16th Feb low), than should bears attempt to close the gap 1.2930 (25th Jan low) will come into play. After that 1.2875 (23nd Jan low), 1.2839 (19th Jan low), and 1.2711 (17th Jan US session low) should provide support.
GbpUsd Much like EURUSD, GBPUSD has charged higher at the start of this week, negating its current downtrend channel and shifting our bias to mildly bullish. However, while the bullish move has been aggressive, the key question is its sustainability. The cable remains well short of the 1-month uptrend channel territory and unable to test the 1.5827 resistance and therefore we will only slightly bullish. On the topside there is plenty of resistance cluttering the path to recovery; first resistance is now 1.5827 (intraday high), 1.5885 (9th Feb high), 1.5932 (15th Nov high), and 1.6000 psychological level. Should the bears resume their sell-off in the coming sessions, watch for supports to come into play at 1.5770 ((14th Feb high), 1.5644 (27th Jan low), 1.5533 (24th Jan low), and 1.5517 (23rd Jan low).
UsdJpy With the help of Japanese authorities who have made it very clear they don't appreciate yen gains the pair continues to find buyers. USDJPY has finally managed to rally through the stubborn 78.30 & 78.67 resistance levels and finally taking out psychological resistance at 79.00; meaning that the recent rally has not been a fluke and the bulls remain in firm command of the pair in the coming sessions. That said we stand ready for a short term correction as some indicators, such as RSI, stand noticeable in overbought territory. Above us resistance is noted at 79.90 (intraday high), which would trigger an extension to 80.24 (4th Aug high), and 81.48 (8th Jul high). On the downside, technical levels below are largely unchanged; first minor support is 79.00 (resistance turned support), 78.68 (14th July 11 high), 77.36 (13th Feb low), then 76.50 (7th Feb low), 76.04 (1st Feb low), 75.54 (record low seen on 31st Oct), 75.00 (major psychological level). Above us resistance is noted at 79.90 (intraday high), which would trigger an extension to 80.24 (4th Aug high), and 81.48 (8th Jul high). On the downside, technical levels below are largely unchanged; first minor support is 79.00 (resistance turned support), 78.68 (14th July 11 high), 77.36 (13th Feb low), then 76.50 (7th Feb low), 76.04 (1st Feb low), 75.54 (record low seen on 31st Oct), 75.00 (major psychological level).
UsdChf USDCHF slumped sharply to a low of 0.9131 today, breaking out the of the 1-week uptrend channel. However, we don't see the downward correction as halting the pairs bullish potential as the pair continues to attract good bids above 0.9150 levels. After the break of 0.9263 yesterday, now exposes the path to 0.9340 (25th Jan high), 0.9381 (23rd Jan high), 0.9413 (19th Jan high), and 0.9497 (18th Jan high). Below us, first support is 0.9103 (10th & 13th Feb lows), then 0.9066 (30th Nov low), 0.9000 (psychological support), 0.8953 (11th Nov low), 0.8922 (9th Nov low), and 0.8761 (3rd Nov low). |
