FOREX TRADING

News and Events:

Today Greece will attempt to issue €1.2bn of short term 6 and 12 month t-bills and will be a critical test of the markets’ faith in the EU / IMF rescue plan. This will be the first test of the markets appetite since the EU formally layout the terms of aid, should Greece request emergency funding. Initially, the markets were very optimistic on the agreement, with the EURUSD climbing to 1.3692, while Greek CDS are sharply lower, now trading below Iceland’s. However, further examination of the Greek bailout plan has produced more questions than answers, causing erosion in confidence. One point is the proposal that Greece will be charged ‘around 5%’ which is clearly below market’s rates. Given that any bailout will need a unanimous EU vote, it’s unknown whether Germany will provide the necessary parliamentary votes given the subsidized rate. The closer Germany gets to Election Day the more likely politicians will use the public’s well publicized resentment towards helping any fiscally irresponsible neighbors as a campaign tool, decreasing the probability of a positive vote. Another concern is if Greece will be able to adhere to it strict austerity plan. And if Greece and other fiscally troubled EU nation actually do adhere to their austerity plans, the overall effect on EU growth will be negative. Another issue will be the speed which the funds could be released. Will an EU summit need to take place or just permission from all countries Finance Minister (the former will trigger a German parliamentary vote)? Our overall feeling is this is still a historical moment for the EU and baring some ironing out, it will be in the short-term EUR positive.

Today Key Issues:

• 08:30 GBP trade balance, GBP7.35 bln deficit eyed; last GBP7.98 bln deficit.
• 08:30 GBP trade – non-EU, GBP4.10 bln deficit eyed; last GBP4.83 bln deficit.
• 12:00 EUR ECB Gonzalez-Paramo speech.
• 12:30 USD int’l trade balance, $38.1 bln deficit eyed; last $37.3 bln deficit.
• 14:00 EUR ECB Tumpel-Gugerell speech.
• 15:45 USD Fed Governor Tarullo (FOMC voter) speaks
• 16:45 USD TsySec Geithner speech in Washington, DC

The Risk Today:

EurUsd Well after such a promising start in Asia, EURUSD fell pretty flat during the rest of the day’s trading yesterday; with the pair slumping back to lows of 1.3562 in the afternoon. However, given the recent developments (break of the 4 month downtrend on Friday, hammer candlestick on the weekly chart, double bottom pattern on the hourly chart), we remain convinced that the medium term direction of EURUSD from here will be higher. For now, the 1.3560-70 area has provided decent bids, and we still see the double bottom formation as valid despite the dip back below the neckline at 1.3590. The target for this pattern remains at 1.3920; a level that is easily achievable in light of the enormous short positioning that still persists in this pair. Resistance levels on the topside can be expected at yesterday’s highs 1.3692, then 1.3800 (50.0% fibonacci retracement level of 1.2457-1.5145), then 1.3850 pivot levels not seen since 4 February. Really, our view will only be compromised by a break back inside the former downtrend -and today that comes in around 1.3450.

GbpUsd Since achieving our symmetrical triangle target and going on to touch 1.5485 highs, GBPUSD has understandably taken a breather in the past 24 hours and pared back some of its gains to 1.5350 levels at the time of writing (1.5337 the lows). Although the pair has been trading within a 2-week uptrend and is very much in the middle of that channel at the moment, we see this as a decent opportunity to try a small long trade (setting a stop just below 1.5300), and note that1.5320 represents the top of the consolidation range seen at the beginning of this month which should hopefully provide some bids. The obvious target above lies at 1.5485 (yesterday’s highs), with more resistance coming in just above there at 1.5520 (upper edge of the 2-week uptrend), and 1.5580 (23 February highs). Confidence in this bullish trend is contingent on the lower bound of the uptrend channel holding in at 1.5135.

UsdJpy USDJPY continues to slide lower from its 4 April peak of 94.79, touching 92.58 lows late in Asia; but our bias in the medium term is still for USDJPY to march higher so see these dips more as an opportunity to add to longs rather than any real threat of a prolonged sell-off. We now monitor the 2 week downtrend channel for signals of when to buy; the upper edge (already tested once this morning) now comes in at 93.45, so a break above could likely be the start of another test of the 95.00 major resistance, although ideally we would prefer to see another dip towards the lower bound of the channel at 92.30 to recharge fully. This latter level has the added bonus of being just above a major support at 92.15, and not far off the back side of the former 3-year downtrend at 91.95 so there is plenty of protection expected from bids down there, and the risk-reward profile is extremely attractive. Above here, resistance levels are still the 93.77 pivot, last Monday’s high of 94.82 and just beyond there the major 95.00 resistance. If we do threaten 94.80-95.00 once more, we would play it conservatively and take half our position out to wait for the break-out to occur. If it does, then there are clear skies above until 97.80 levels that have not been seen since 7 August 2009.

UsdChf A very unexciting pair of late. USDCHF’s inability to convincingly break out in either direction leaves us confined to trundling around in the old ranges; support levels below remain at the psychologically important 1.0500 level, then the major 1 April lows at 1.0434, and finally downtrend support seen at 1.0400. Looking to the topside, first resistance is expected at 1.0750 (coinciding with 25 March highs and the upper edge of a weak downtrend line), then 1.0810 (5 March highs) before the major resistance at 1.0900 that has not been threatened since early March.

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.