Forex - S&P Removes Greece from Negative Watch

Forex News and Events:

The USD has come under heavy selling pressure across the board, as anxiety surrounding Greece temporarily decreased and latest FOMC policy decision was widely viewed less hawkish than the market was expecting. After two days in Brussels, the main points to come out was from EU's Rehn, who stated that the Eurogroup had sketch out an aid strategy to Greece. However, since Greek Finance Minister Papaconstantinou had not asked for a bailout, no details of the plan would be devolved. Seems to us further use of verbal parlor tricks to conceal the fact the EU will eventually do nothing. Slightly more concrete and positive for the EUR was the S&P announcement that affirmed Greece's BBB+ credit rating and removed it from Credit Watch Negative, although Greece still retains its negative outlook. This is surprising to us, since the rating agency just downgraded Greece only a few weeks ago and we remain skeptical of the recent EUR rally. In, Asia the BoJ voted unanimously to keep its policy rate unchanged at 0.1% but in a 5-2 vote, doubling the short term fixed-rate lending facility to Y20 tn. The move had been widely publicized and the JPY gained slightly as the market had expected a more aggressive form of QE. In the UK, the BoE MPC minutes are due today and markets expect a unanimous vote to hold monetary policy unchanged. There has been a growing call for further quantitative easing from several members and we expect that additional £25bn asset purchases remains in place. However, the timing of the increase will be variable, based heavily on CPI coming down.

Today's Key Issues (time in GMT):

08:15 EUR ECB Draghi EU parliamentary testimony in Brussels.
09:30 GBP BoE MPC March 3-4 meeting minutes
09:30 GBP Feb claimant count, +8k eyed; last +23.5k.
09:30 GBP Jan avge weekly earnings, +1.7% eyed; last +0.8%.
09:30 GBP Jan ILO unemployment, 7.9% eyed; last 7.8%.
10:00 EUR E16: Construction output, % m/m (y/y)
10:00 EUR Q4 labor costs and wages; last +3.2% and +3.1%.
12:30 USD Feb PPI, -0.4% m/m eyed; last +1.4% m/m, +4.6% y/y.
12:30 USD Feb PPI - core, +0.1% m/m eyed; last +0.3% m/m, +1.0% y/y.
18:00 USD FOMC Chair Bernanke, White House Volcker House testimony

The Risk Today:

EurUsd Doesn’t really seem THAT surprising we got another dovish FOMC meeting last night considering it was the perennial dove Janet Yellen’s first meeting as vice chairman; but happily for us, the effect has been ubiquitous softening of the USD, and all developments that undermine USD strength are helpful to our bullish EURUSD stance. In the past 24 we have once again breached the long-term downtrend, and look to be making another push skyward towards 1.3800. This, in our view might be the big day where we finally break free of the 3-month downtrend shackles, so crucial to this will be the resilience of the back side of the trendline around 1.3735. Currently the headwinds above at 1.3800 represent a triple-witching of former resistance (17 Feb and 12 Mar highs), fibonacci level (50.0% of 1.2457-1.5145), and upper bound of the 3-4 week uptrend, but we are cautiously optimistic after seeing the bullish engulfing candlestick formed on the daily chart at the start of this week –a formation which suggests further bullish momentum is imminent. Above there, the 50-day moving average is finally catching up with us, so expect further selling pressure where it comes in at 1.3870. We still look for opportunities to buy on dips; today any move towards 1.3735 seems like a bargain to reload longs, but we must however remain wary that a break below leaves few supports until 1.3640 and 1.3530.

GbpUsd Much like EURUSD, we are getting excited by the bullish tone to GBPUSD today; with another example of a bullish engulfing candlestick carved out on the daily chart and an encouraging consolidation back above Friday’s 1.5218 highs. It’s all about positioning on these pairs, and the bullish engulfing candlestick is a very good sign that the bears are becoming overwhelmed by the bulls after this 2 month downtrend. So far, the back side of the short-term uptrend has rebutted the rally on the first attempt, but we expect good bids in and around 1.5200 to keep us supported, and look for the next leg of the rally to take us back towards 1.5350 pivot level as the next stop. Although there are almost certain to be ample sellers lurking there to push us back down on the first visit, above that 1.5350 pivot are clear skies until 1.5581! Any break below 1.5200 would however put us firmly back in old range territory; with only weak support anticipated around 1.5000, and a big drop to next supports below at 1.4780 then 1.4515.

UsdJpy Compared to the tangible sense of anticipation for a break-out in EURUSD; USDJPY looks altogether less feisty –but we still retain our bullish bias for the time being. The most profitable strategy of late seems to be ultra-short-term range trading between 90.00-15 to 90.65-80, but for the more medium trader the progress has been frustrating. There is still reason to be cheerful that the frequent sell-offs have been less and less of a threat to the back side of the former downtrend with each attempt; that trendline comes in today around 89.75, but should be shielded somewhat by the 50-day and 100-day moving averages above at 90.34 and 90.11 respectively. Given the lack of price development, we stick with our existing longs but would steer clear of adding any more until we see a break above 91.10 overhead resistance; and even then we need to be mindful of getting over-exuberant with the top of the current uptrend likely to provide resistance at 91.50, closely followed by the 200-day moving average at 91.69.

UsdChf Our bearish flag patterned highlighted yesterday was confirmed later in the morning with the short-term uptrend broken at 1.0595, and a subsequent drop as far as 1.0517 post-FOMC. According to the classical estimates for this chart pattern target, we should expect to see 1.0480 in the ensuing days, but given the proximity of the former downtrend around that level and the 200-day moving average creeping in at 1.0488, we now prefer acting slightly more conservatively and would take profits off the table around 1.0500 – coinciding with support from 3 Feb lows. In terms of risk management, we would now move our stop down to coincide with 1.0600 resistance (making this a virtually risk-free trade), and expect the 100-day moving average at 1.0585 to provide some protection ahead of there.

Resistance and Support:

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot