FOREX TRADING

News and Events:

Pressure continues to mount on Greece as markets remained unconvinced that the EU and IMF aid package will come in time. Greek 2-year bond yields jumped to 13.53% and 1-year CDS rose to 1078. Worryingly Portugal ‘s and Spain CDS prices are now being pulled higher, increasing the markets concern over EU contagion. As to be expected the EUR remained choppy as news, analysis and comments hit the wire with regular frequency. In Asian sessions, risky assets sold off as an article in FT Deutschland reported that the Netherlands would support Germanys call for tougher austerity measure in return for financial aid. Yesterday German Chancellor Merkel said Germany would support Greece if preconditions were met as Germany was obligated to insure the stability of the EMU. Recent IMM data has shown that EUR short positions have increased and the longer the Greece situation goes without a resolution, the harder it will be for the EU and EUR to pull out of what G. Soros’ referred to as a ‘Death Spiral.’ However, the inability for the EURUSD to trade to lower lowers even as Greece bond yields spiral higher gives the technical picture plenty of upside potential. With a light economic calendar today, markets will be completely focused on the Greece story which will be the core determinate of FX pricing. With plenty of downtime, analysis and pundits have a ton of time to grind the data and play the ‘what if game’…which will just add to the EURs woes. Much of the recent focus has now shifted on the mid-term predictions and if multi-year package of €90bn would actually provide Greece with the breathing room it needs to implement the critical fiscal adjustment. The weak EUR has caused some trouble for the SNB. Yesterday Swiss Finance Minister Hans-Rudolf Merz stated that Switzerland is ready to offset any excessive appreciation of the CHF against the EUR, which was consistent with the current SNB’s position. While not a surprise given well documented policy, it should put short EURCHF on guard. On that seems to be a side note, the FOMC will begin its two day meeting today. We believe the Fed will sound optimistic and signal very gradually moving down the path to policy normalisation, which should be positive for commodity currencies in the near term.

Today Key Issues:

• 00:00 NOK USD FOMC begins two-day policy meeting.
• 00:00 EUR Norges Bank DepGov Qvigstad speech at Frankfurt ECB conference.
• 06:00 EUR GER May GfK sentiment index, 3.3 eyed; last 3.2.
• 06:00 EUR GER Mar import prices, +1.1% m/m, +4.2% y/y eyed; last +1.0%, +2.6%.
• 06:45 EUR FRA Apr consumer confidence index, -33.0 eyed; last -34.0.
• 07:30 SEK ITA Apr consumer confidence index, 106.6 eyed; last 106.3.
• 07:30 GBP Mar PPI; last +0.3% m/m, +0.8% y/y.
• 10:00 EUR Apr CBI distributive trades index, 15.0 eyed; last 13.0.
• 11:30 USD ECB Tumpel-Gugerell speech in Paris.
• 13:00 USD Feb S&P/CS home price index, -0.1%m/m eyed; last +0.3%m/m, -0.7%y/y.
• 14:00 EUR Apr CB consumer confidence index, 54.0 eyed; last 52.5.
• 14:15 ECB Pres Trichet speech in Chicago

The Risk Today:

EurUsd EURUSD appears to be defying sickly European bond markets and surging Greek CDS prices by inching its way higher; and although admittedly it is currently trading at similar levels to yesterday morning, notably the corrections lower have become shallower on each successive cycle. We now see an ascending triangle pattern forming on the hourly chart, with major resistance at 1.3415-20 (depending on whether you choose to take the 26th or 22nd April highs to define the horizontal edge of the triangle). We therefore would look to go long on a break above this level, with the width of the triangle defining a target around 1.3630 –however given that we also see some major resistance levels at 1.3529 (50-day moving average) and 1.3590 (prior pivot level), it may be prudent to take some profits off the table earlier. In the meantime, expect the lower edge of the triangle to provide support at 1.3340, and below there the 1.3202 lows from 23 April, then 1.3100.

GbpUsd Contrasting with EURUSD’s admirable stand over the past 24 hours, GBPUSD has been much more ready to concede its gains, and is now relying on the 1-month uptrend for support down at current 1.5390 levels. We see two alternative vibration channels defining the lower bound of the uptrend, the higher of these comes in today at 1.5390, with the more robust one (i.e. not punctured over the past week) down below at 1.5340. Medium-term, we’re still confident this one goes higher, but if this uptrend channel should fail, then we may have to wait for a choppy consolidation period before the next legs higher. Next supports to watch below come in at 1.5229 (50-day moving average), 1.5190 (19 April low), then 1.5130 (6 April low). On the topside, first resistance for any rallies is likely to be 1.5500-25 (where prior rallies stalled on 15 April and yesterday), and while a break above there would be highly catalytic for a further bullish move, we still note levels above there at 1.5575 (23 Feb highs) and the 100-day moving average now seen at 1.5638.

UsdJpy USDJPY’s progress higher comes in fits and starts, and since the test of the top edge of the ichimoku weekly cloud cover around 94.30 yesterday we have pared gradually lower; with the consolidation bringing us back to rest on the 93.77 pivot level. We still remain confident of in our medium term bullish bias, but with major resistance levels at 94.79 (4 April highs) and the psychologically important 95.00 level (last seen 24 August last year), the risk-reward profile for new long entry is a difficult one to juggle. One option would be to add some small longs around 93.77, relying on the weak uptrend around 93.55 to protect us; putting a stop just below 93.30 (23 April lows and 38.2% fibonacci retracement of 91.60-94.36). Supports to watch below there lie at 92.85, 92.50 and 91.70 (50-day moving average). Alternatively, for the turtle traders amongst us, a break above 95.00 would open up targets in the region of 97.00, so our other option would be to wait for a confirmed move above there, and buy on the break-out.

UsdChf USCHF has offered limited price developments in the past day; locked in a tight range between 1.0700-1.0790. The late sell-off yesterday has breached our tentative uptrend line, but the subsequent bounce this morning brings us back within the channel and really gives us few clues as to whether there is sufficient momentum for a move in either direction. Expect a sticky area of bids around 1.0730-40 ahead of 1.0700; with next resistance levels of note seen just ahead of 1.0800, then 1.0900.

ACM FOREX

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