FOREX TRADING

Sunrise Market Commentary

• More details on Greek support package put bonds under pressure
  Friday, the bund came under pressure on expectations a more detailed Greek rescue package would be made public soon. Over the weekend, authorities did publish a huge €40-46B package that will go some way to ease investors’ concerns about the country. Return of risk appetite should weigh on the bunds.
• Euro rebounds on new Greek rescue plan
  On Friday, a short covering move helped EUR/USD to recoup a big part of the week losses as markets anticipated a new EU initiative to support Greece. A new plan was announced over the weekend. This triggered additional euro gains this morning. However, it is highly doubtful that the current development will mark a major U-turn for the EUR/USD cross rate in a longer term perspective.

The Sunrise Headlines

• On Friday, US Equities rose on easing worries regarding Greece’s fiscal problems. The Dow/S&P rose by 0.64% / 0.67% led by energy shares. This morning, Asian shares reversed part of the opening gains.
• Euro zone finance ministers approved an emergency aid mechanism providing up to €30 billion in loans to Greece over the next year to help stave off a debt crisis that has roiled financial markets and posed the most serious challenge to the euro in its history.
• A Polish central banker called for a quick replacement for the bank’s governor Skrzypek, who along with President Kaczynski and many of Poland’s top government died in a plane crash, to avoid legal pitfalls that could stall decision making.
• Many Bank of Japan policy board members played up the effectiveness of extra monetary policy easing even as the economy recovers and deflation eases, the minutes of the BOJ’s last meeting showed, suggesting it could loosen policy more in the months ahead.
• Hungary’s centre-right opposition Fidesz claimed a landside general election victory on Sunday. Fidesz ousted the Socialists into a distant second, just ahead of the far-right Jobbik party.
• Australian interest rates are rising back towards average from very low levels and are now close to what policymakers consider normal, the assistant governor of the Reserve Bank of Australia said.
• Today, the eco calendar contains the Italian industrial production data. US Q1 earnings seasons starts today with Alcoa.

Currencies: Euro Rebounds On New Greek Rescue Plan

EUR/USD

At the end of last week, it was already obvious that an additional step should be made to prevent Greece from running further into trouble. The steep rise in Greek bond yields throughout the week made it clear that the previous EU commitment towards Greece was not forceful enough to allow the country to get funding at levels that would not hamper its efforts to fix its budget. So, the euro drifted south for most of last week. On Thursday, the EUR/USD cross rate came within striking distance of the year lows set at the end of last month. However, a real test of this level didn’t occur. On Friday, there was already a lot of market talk on a new EU plan to support Greece. The prospect a new plan already closed quite an aggressive euro shortcovering move going into the weekend. Rating agency Fitch cutting the Greek credit rating by two notches only had a very limited impact on EUR/USD trading. EUR/USD closed the week at 1.3500 up from 1.3361 on Thursday evening, awaiting the things to come.

Over the weekend, the EU indeed came out with a detailed safety net for Greece. Contrary to the previous EU plans, this agreement contains detailed amounts and interest rates. At this stage, it is still not clear whether Greece will use the facility anytime soon. Nevertheless, this time to commitment looks specific enough for markets to stop haunting Greece (and the euro). So, in this context, one might expect some additional short covering on euro short positions that were set up on the back of mounting Greek pressures last week. However, the question is how forceful the impact of the Greek plan should be for global markets. Last week, we already indicated that the Greek story should be more or less discounted by (global) markets. If so, the impact of this plan shouldn’t cause a landslide on global markets either. So, we expect a positive reaction on global (European) markets this morning. However, the reaction should not be really euphoric. On the forex market, the agreement caused the EUR/USD cross rate to break above the 1.3592 ST neckline this morning. This is a short-term positive signal. The targets of this configuration come in at 1.3902/17. Ahead of these targets, the 1.3851 previous breakdown might provide interim resistance. So, in a day-to-day perspective, the pressure in the EUR/USD cross rate might ease. However, in a long-term perspective, we don’t see the current events as a reason to change our longstanding EUR/USD negative (USD positive, cyclical) call. So, we still look to sell EUR/USD as soon as this short covering move runs out of steam.

EUR/USD rebounds on Greek rescue plan

Support comes in at 1.3592 (Neckline double bottom), at 1.3549/44 (Week STMA/LTMA), at 1.3500 (Gap), at 1.3449 (Weekly envelope) and at 1.3427/18 (MTMA/STMA).

Resistance stands at 1.3678/88 (Reaction high/76 % retracement ST), at 1.3710 (23% retracement 2009), at 1.3746/52 (Boll top/Weekly envelope) and 1.3819 (Reaction high) and at 1.3851 (Breakdown MT).

The pair is in neutral territory.

USDJPY

On Friday, technical considerations continued to dominate the price action in the USD/JPY cross rate. The pair was well bid early in the session and ticked up to the 93.80 area. Later in the session however, the dollar lost some ground across the board. Despite the positive sentiment on global equity markets, USD/JPY joined this ‘correction’. So, the USD/JPY cross rate was not able profit from improving global risk appetite and the pair continued to correction/consolidation pattern that was in place earlier last week.

This morning, USD/JPY is holding close to the levels that were on the screens at the end of last week. So, once again, the cross rate is not able to profit from improved sentiment to risk and from the steep rise in the EUR/JPY cross rate. This is again a bit disappointing for USD/JPY bears. In broader perspective, the test of the key 93.80 resistance area continues. Early this month, the pair tried to regain this key area. Good US eco data and Japanese authorities trying to stop lingering deflation risks were a good reason for the pair to try to take out this key level. Last week, the momentum in the USD/JPY upmove faltered and the pair even returned below this reference level. However, we still see this move as unwinding overbought conditions after the end-March rally. Longer term, we still see room for more USD/JPY gains once this ST consolidation pattern has run its course. In this respect, we also look out for the market reaction to the start of the earnings season. Question is how much good news is already discounted in the stock markets after the recent rally? If earnings would not be able to live up to the high market expectations, the current correction/ consolidation in USD/JPY might still have some further to go.

USD/JPY: consolidation pattern continues

Support is seen at 92.90/83 (Reaction low/last week low), at 92.68/59 (Weekly +daily envelope) and at 92.42 (23% Retracement of 2009).

Resistance comes in at 93.79 (Reaction high), at 94.03/14 (Reaction high/Weekly Boll top), at 94.27/40 (Reaction high) and at 94.78 (Reaction high +weekly envelope).

The pair is in neutral territory.

EURGBP

On Friday, trading in the EUR/GBP cross rate more or less joined the price action in EUR/USD. However, underlying sentiment for the UK currency was still reasonably strong. The EUR/GBP cross rate even reached a new correction low in the 0.8705 area during the day. Later in the session, market speculation on a new EU support plan for Greece triggered a global rebound of the euro. EUR/GBP jumped off from the intraday lows and closed the session in the 0.8780 area. In a broader perspective, sterling still had a reasonably strong weekly performance against the single currency.

This morning, EUR/GBP is joining the broad rebound of the euro on the back of the new EU rescue plan for Greece. So, for now this is a euro story. In a short term perspective, the euro rebound might still have some further to go (cf EUR/USD). In a somewhat longer term perspective, the UK/sterling side of the story might again come in the picture, especially as UK elections are coming closer. At least for now, the prospect of the elections hasn’t really harmed sterling that much (at least not against the euro). We have to admit that we are a bit surprised by the recent strong performance of sterling against the euro. Nevertheless, from a tactical point of view, we assume that more sustained gains of the UK currency will become less easy from the current levels. From a technical point of view, several strong support levels are lining up in the EUR/GBP cross rate: 0.8705 (reaction low), 0.8660 area and 0.8602 reaction low. We expect this area to be difficult to break

EUR/GBP: rebound off from Friday’s correction low

News

EMU: Press release on Greek support package

Statement on the support to Greece by Euro area Members States Following the statement by the Heads of State and Government of the Euro area on 25 March, Euro area Members States have agreed upon the terms of the financial support that will be given to Greece, when needed, to safeguard financial stability in the Euro area as a whole.

Euro area Members States are ready to provide financing via bilateral loans centrally pooled by the European Commission as part of a package including International Monetary Fund financing.

The Commission, in liaison with the ECB, will start working on Monday April 12th, with the International Monetary Fund and the Greek authorities on a joint programme (including amounts and conditionality, building on the recommendations adopted by the Ecofin Council in February).

In parallel, Euro area Members States will engage the necessary steps, at national level, in order to be able to deliver a swift assistance to Greece. Euro area Member States will decide the activation of the support when needed and disbursements will be decided by participating Member States.

The programme will cover a three-year period. The euro area Member States are ready to contribute for their part up to € 30 billion in the first year to cover financing needs in a joint programme to be designed with and cofinanced by the IMF. Financial support for the following years will be decided upon the agreement of the joint programme

In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted on non-concessional interest rates. The pricing formula used by the IMF is an appropriate benchmark for setting Euro area Members States bilateral loan conditions, albeit with some adjustments. Variable-rate loans will be based on 3-month Euribor. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates for the relevant maturities. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis oints will be charged to cover operational costs. For instance, as of April 9th, for a three year fixed-rate loan granted to Greece, the rate would be around 5%.

The Eurogroup is confident that the determined efforts of the Greek authorities and of its European Partners will allow to overcome the fiscal and structural challenges of the Greek economy. In this context, the Eurogroup welcomes the budget execution in the first months of the year, which shows that the measures taken so far are bearing fruit.

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Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.