FOREX TRADING

News and Events:

The fx markets main focus continues to be the Greek sovereign debt issue and the potential of something concrete materializing from the ECOFIN meeting today. However, we are doubtful we will hear anything new. The Eurozone members are expected to pressure Greece into endorsing further austerity measures and will be given until mid March to prove it will be able to reach its forecasted deficit targets (we are not sure what an extra few weeks will do but…). As of yet, there has been no official bailout plan reported, only a softly worded statement on EU ‘solidarity’ and we don’t think a detail strategy is coming any time soon. So, now FX traders can look forward to 30 days of nervousness and in our mind EUR weakness. Overnight, there has been some harshly worded comments that suggest that members might not be a cohesive as last weeks statement advocated. Finland ‘s Finance Minister stated that EU rules were ‘against a bailout’ and any aid would have to be a bilateral agreement between Greece and members. He also suggested that Finland would not help and ‘Greece must get the money it needs from the market,’ and that Finland has already help enough by supporting Latvia and Iceland . The Austrian Finance Minister said that the fuzzy economic data produced by Greek should not be allowed to undermine the credibility of the EUR. Worryingly, Eurostat, which is already bringing Greece to court for statistical irregularities, today issued a statement that they were unaware that Greece used currency swaps to disguise gaps in there balance sheet. The statistical agency of the European commission has now set an end of February deadline for disclosure on these transactions. Because of the EUs own disclosure and accounting rules, members were not required to report these deals, so markets are completely in the dark to the size and scope of these swaps. And given the familiar names and structures being mentioned, it has eerier similarity to past crisis in the US at the state and country level. Separately, The RBA minutes of Feb 2nd policy meeting provided no real insight into the timing of the next hike.

The AUD bulls (us) found a glimmer of hope in the fact that the reference ‘finely balanced’ remained indicating that strong data leading up to March could sway members. The RBA is still accommodating and the expectation of further inflation assumes ‘gradual further increase in the cash rate’ but the timing is uncertain. Currently, the market is not pricing in a hike in March but if data prints stronger than expected, we thing there is a good shot at another 25bp in March and keeping the AUD well supported. Separately, in New Zealand, Q4 producer prices were weaker than expected, with input prices rising only 0.3% q/q vs. 0.5% expected, -1.1% prior, while output prices fell -0.4% q/q vs. 0.4% exp, -1.4% prior. The much anticipated UK CPI figures printed lower then expected at -0.2% m/m, 3.5% y/y vs -0.1%, +3.5% expected. The GBP sold off slightly ahead of the figures but with the outcome nowhere near the 4.0% y/y print some had expected, we believe the sterling downside is now exposed.

Today Key Issues:

• 09:30 GBP CPI, % m/m (y/y) Jan 0.6 (2.9) prior
• 09:30 GBP RPI, % m/m (y/y) Jan 0.6 (2.4) prior
• 09:30 GBP RPIX, % m/m (y/y) Jan .6 (3.8) prior
• 10:00 EUR Germany: ZEW economic expectations index Feb 47.2 prior
• 13:30 USD Empire state manufacturing index Feb 15.92 prior
• 14:00 USD Net long-term TIC flows, $ bn Dec 126.8 prior
• 17:45 USD Minneapolis Fed President Kocherlakota (FOMC non-voter) speaks
• 18:00 USD NAHB housing market index Feb 15 prior
• 23:50 JPY Tertiary industry index, %, m/m Dec -0.2 prior

The Risk Today:

EurUsd Yesterday’s US market holiday made for a slow day in EURUSD with a narrow 1.3579-1.3633 range defining the day’s price action, allowing the 14-day RSI to edge back out of oversold territory to 33 levels. Although there’s likely to be a bit more activity today with the US back in and the ZEW survey scheduled this morning, developments in Greece will overshadow most other variables in dictating EURUSD’s bias in the medium term. For now, the 2 week downtrend is the line to watch; with resistance having held on the past 4 occasions, this morning coming in at 1.3665. We should however note that in the absence of other catalysts, there are a number of support levels now in play below which will make price action sticky; starting with yesterday’s 1.3579 lows, then the 1.3531 reaction low from 12 Feb, and below there the 1.3484 fibonacci retracement level (61.8% of 1.2457 to 1.5145). A break above this 2 week downtrend can be expected to easily reach 1.3760 (coinciding with a vibration channel of the larger 3 month downtrend), but should find significant resistance just above the psychological 1.3800 level (and 50% fib retracement level of 1.2457-1.5145). As such, the pay-off profile of waiting for a break higher looks to be the most attractive right now, but disciplined stops will be necessary given the overarching bear trend is still to be respected.

GbpUsd GBPUSD is likely to be highly sensitive to the CPI data released this morning, so we tread with caution until the release, but favouring a slight bearish bias given the strong downtrend still in play in both this pair and EURUSD. So far this morning the pair has been testing the 1 week downtrend line (in a similar fashion to EURUSD), but the pair should meet decent supply around 1.5750, and above there the significant support-turned-resistance at 1.5833. After last night’s mild risk rally we are currently a long way off the nearest expected support at 1.5535 (uptrend vibration channel and 8 Feb lows), so short positions look quite appealing around current levels (1.5720), and really, only daily close above 1.5900 (above the 1 month downtrend) would force us to reconsider our bearish outlook for the short to medium term.

UsdJpy The 1 month downtrend remains the dominant driver of USDJPY, currently coming in around 90.15, and likely to be further protected by very short-term resistance at 89.95. In terms of targets on the downside, the 1 week uptrend support now comes in around 89.30-35; also coinciding with expected support from the fib retracement level (50.0% of 84.83 to 93.77), and backed up by the prior 89.15 level that represented the floor for USDJPY last week. If we do see a resumption of the larger downtrend below 89.15 then really the 88.55 lows from 4 Feb represent the final level of buying interest, before the lower bound of the current downtrend channel at 87.20. Given the potency of the bearish bias and the considerable macroeconomic uncertainty, we favour playing this from the short side, however if we do see a breach of 90.15, there are plenty of levels of selling interest likely to come in around 90.35 (38.2% fib retracement level), 90.55 pivot level, and 91.00 resistance.

UsdChf Like most other pairs this morning, the USD is drifting lower against CHF on the back of improved risk appetite which now shifts the focus in the near term to the 1.0700 uptrend and psychological support. Nevertheless, there are plenty of areas of buying interest expected below, starting with 1.0664 (23.6% fib retracement of 1.0130-1.0828), 1.0600-10 support zone, and then the back side of the prior downtrend which currently comes in at 1.0585. We expect any rallies to be capped for the moment by selling interest towards the recent 1.0828 highs, but the major bottom carved out since last November means we prefer to wait for a correction lower for more attractive long entry levels, and note that beyond 1.0828, the next area of supply is not anticipated until around 1.0980

ACM FOREX

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.