FOREX TRADING

Risk aversion crept back into markets today, putting pressure on global bourses. Ongoing concerns regarding European sovereign debt and policy tightening in China weighed on risk appetite, boosting demand for safe haven assets like the greenback and the yen. The RBA increased Australia’s benchmark rate for the 6th time since October but hinted to a slow in the pace of monetary tightening, sparking a sell-off in the aussie. The greenback benefitted with the dollar index re-testing the April 28th high, at 82.71. Commodity prices were softer on dollar strength, with gold dipping to $1181 and crude oil falling back below $86 per-barrel.

Bail-Out Provides No Support

Euro pressure persisted amid lingering fears over Greece, as today marked the start of a 48 hour nationwide public sector strike in protest to the recent implementation of strict austerity measures. The single currency fell early in the London session, triggering our medium-term limit at 1.3130. The euro’s next target lies at the figure. Subsequent floors are eyed at the 100% Fibonacci extension taken from the April 26th and May 2nd highs at 1.3060, followed by 1.3020 and the 1.30 handle. Long-term targets extend as low as 1.2880. To the topside, resistance is seen at 1.32, backed by our risk limit at 1.3260, and the 1.33 figure. Upside potential gains momentum with a break above the monthly pivot at 1.3340, with additional ceilings eyed at 1.34 and 1.3450. (more…)

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.’ (more…)

It has been a nervy afternoon’s trading after a surprise plunge in US equity indices whiplashed FX markets and particularly JPY-crosses into risk aversion mode. The S&P index rapidly dropped around 1.3% shortly after the US open, seemingly with no news headlines triggering the move. The unexpected shock sent EURJPY plummeting from 129.25 to 128.25 in a matter of seconds, and after taking out the 2 month uptrend support at 128.15, we have now touched lows of 127.54. Until that point, risk sentiment appeared to be stabilizing; early USD gains had been gradually pared back during the day after Goldman Sachs reported much better than expected earnings and an IMF spokesperson was quoted as saying there was no expectation for Greece to request financial help from the IMF which eased some concerns about sovereign default. US claims data released earlier in the session had been higher than consensus estimates, but still relatively benign in their effect on FX markets (initial claims 482k vs. 440k expected, continuing claims 4599k vs. 4598k expected). The Philadelphia Fed index missed forecasts (15.2 vs. 18.0 expected), but US leading indicators increased more than expected (1.1% vs. 0.7% expected). Also released during the afternoon was the BoC’s Monetary Policy Report, followed by the usual press conference with Governor Carney. There were very few new developments from the recent BoC meeting statement, but there was a repetition of the currency-specific comments that CAD strength combined with the absolute low level of US demand would continue to dampen exports.

Since that point however, the equity market slump has dominated price action, with EURUSD dragged back towards session lows around 1.4050, and gold taking out major support levels at $1195 to touch a low of $1089.85. We still look for gold to head towards the head-and-shoulders target of $1080 after the break of the neckline support at $1119 yesterday. Still to come, it has been announced that US President Barack Obama with speak at 17:40 CET to “offer proposals to limit financial institutions’ size and trading activities”. We expect jittery markets to persist until this event is out of the way.

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

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.