FOREX TRADING

Potential Eurozone Assistance for Greece Gives Risk a Boost

Forex News and Events:

Markets were very busy yesterday pricing in speculation and conjecture. The day started with rumors that ECB’s Trichet had left a meeting of central bankers prematurely to head to Brussels to address the Greek situation. Then, later in the day, a German official was cited in say that the Eurozone governments have decided to ‘take significant steps’ to support Greece. This buzz sent traders scrambling out of their safe haven hiding spots. The EURUSD traded up from 1.3700 to nearly 1.3840, while AUDJPY climbed to 0.8800. The rapid move also caught the markets that were considerably short EUR off guard, and the ensuing short squeeze gave the move a frantic feel. Later and through today, German officials are continuing to adamantly deny that any decision on aid for Greece has been made. The Maastricht treaty is vague in this unexplored area, but it seemingly forbids guaranteed loans from the ECB or member states (assuming “liabilities of other member states”) and discrediting today’s WSJ article. However, support could come directly from unguaranteed loans from member states. Hence, the constant mention of Germany. It’s really just a gut feeling the current rhetoric was aimed to relieve pressure and buy time (halting “contagion” speculation). We do believe some sort of stability or bailout program is imminent, but in this rushed, manic fashion. Overshadowed by the gossiping (potential teleconference between EZ ministers this afternoon) UK released Industrial production data and Inflation reports. The Industrial production climbed to m/m 0.5% vs. 0.2% exp, while the inflation forecast on the two year time horizon was revised slightly down. For tomorrow, markets are expecting the Riksbank to leave interest rates on hold at 0.25% this month and also look for the central bank to upgrade its forecasts for employment, growth and inflation. For now, policymakers continue to affirm that they will raise rates in the Autumn of 2010, citing uncertainties to the Swedish economic recovery as the basis for their cautious approach. Nevertheless, if the fundamental rebound in Nordic economy is faster than expected, markets could start bringing forward their timeline for the first hike to July.

Today’s Key Issues (time in GMT):

08:30 SEK Industrial production, % m/m Dec 0.2 prior
09:00 SEK AMV Unemployment rate, % Jan 5.6 prior
09:00 NOK CPI, % m/m (y/y) Jan) 0.2 (2.0) prior
09:30 GBP Industrial production, % m/m (y/y) Dec 0.2 (-4.1) exp
09:30 GBP Manufacturing output, % m/m (y/y) Dec) 0.2 (-3.1) exp, 0.4 (-6.0) prior
10:30 GBP BoE publishes quarterly Inflation Report
13:30 CAD International Merchandise Trade, C$ bn Dec -0.2 exp
13:30 USD Trade balance, $bn Dec -35.4 exp
17:45 USD Philadelphia Fed President Plosser (FOMC non-voter) speaks on the financial crisis
19:00 USD Budget balance, $bn Jan-60.0 exp

The Risk Today:

EurUsd Rampant speculation that the EU might take concrete steps to fixthe troublesome Greek fiscal situation fueled a rally in risk. Yesterday, the EURUSD made long strides off the 1.3586 monthly lows, easily clearing 1.3748 major pivot level and entrenched the short term uptrend. The move was amplified by traders caught in a short squeeze and stops being triggered around the 1.3748 level. However, the pair’s outlook is still bearish and now faces significant topside barriers in the form of the dominant downtrend channel and horizontal resistance. At 1.3848 (topside of shorter channel trend) decent selling interest should materialize and by Friday the level should be reinforced by the collision with the dominant downtrend resistance. After the aggressive upside move yesterday, the benefits from a corrective short squeeze have greatly faded and lacking any tangible EU bailout, we still prefer to play this pair from the short side. It seems worth a shot to rebuild short positions off the interim downtrend resistance at 1.3845. As for support, the growing short term trend should provide a cushion at 1.3680. The next downside targets eyed are the post‐NFP lows of 1.3586, then 1.3510 (next vibration channel support), followed by 1.3484 (61.8% fib retracement of the 2009 rally). At this stage, we could easily rally as far at 1.3900 and still be within the dominant downtrend channel, and given the speed of the descent there are very few areas of noteworthy supply on the radar between here and there. The 1.3855 level would be the main hurdle, and by Thursday, this would coincide with the upper bound of the major downtrend in play. Until that point, it seems worth a shot to try going long off this interim uptrend support (with tight stops), but as soon as we are withing sight of that major downtrend that would be our cue to start rebuilding shorts. The next downside targets eyed are the post-NFP lows of 1.3586, then 1.3510 (next vibration channel support), followed by 1.3484 (61.8% fib retracement of the 2009 rally).

GbpUsd The GBPUSD was able to rally off the 12 month uptrend support, which has been steady coming into play in at 1.5530 and halting at the lower bound of the onemonth downtrend. Price action will still be heavily determined by external variables so we remain unbiased at this stage in terms of the direction for GBPUSD. Instead, we’ll wait for a convincing break‐out either way to dictate whether the 12 month uptrend or the one month downtrend will prevail. If a break of the up‐trend occurs, expect stubborn seller to come back into the market around 1.5748 horizontal resistances ahead the major supply area of 1.6080.Of course, a break of the 12 month bullish uptrend would be extremely significant (we only need to refer to the break of EURUSD’s12 month uptrend last December for evidence of this) and yet amply buyers located at 1.5530 is proving to be a hardy lot then1.5315 prior technical support and 23.6% fiboretracement of the sell‐off 2.1161‐1.3507 would be expected to stall a major move lower.

UsdJpy USDJPY broke out of its symmetrical triangle formation after theknee‐jerk risk sell‐off of haven trades yesterday. Taken from the widest point of the triangle, the target for a break‐out would be 150 pips either side –approximately 90.80 on the topside (coinciding nicely with the upper bound of the 1 month downtrend today), or 87.50 for a break to the downside (prior pivot level), but we did not see the follow thru we had expected. Should we see a proper break‐out to the topside however, we would caution that selling interest is expected around 90.30 levels; an area that corresponds to theback side of the prior downtrend channel, and the 50% fib retracement of 84.83‐93.77. For now, there should be solid support at 88.90 bullish short‐term trend then weak support expected at 88.25 (61.8% fib retracement), given how the price action last week seemed to slice through these fibonaccilevels like a hot knife through butter, we think the only notable support will be below there at 88.00 (major trendlinesupport).

UsdChf USDCHF looks to be breaching its 1 month uptrend around 1.0695, which if confirmed would look to visit the 1.0643 post-intervention highs and major pivot level. There is plenty of support on the downside if we do head lower; most notably the back side of the prior downtrend which now comes in at 1.0610 and is underpinned by the prior technical resistance at 1.0603 which now represents a decent area of support. Really, only a break below the major 1.0500 level would threaten our bullish bias from here, and instead we look for dips towards 1.0600 to buy and look for a move back up to 1.0800.

AC Markets
http://www.ac-markets.com

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