Spain, the Runner-up

Forex News and Events:

The European volcano has been all but dormant in the waiting of the June 17 Greek elections. Spain’s situation has been worsening as the downgrade of 16 Spanish banks and four regions on May 17th and 18th by Moody’s weighed down on funding costs. During the European session on Friday, the rating agency Standard & Poor’s downgraded Spain’s third largest lender by assets Bankia to junk. The bank having confirmed its petition for EUR 19bn in government aid, is perceived by S&P as holding “particularly dominant business positions in some wealthy economic areas” in result of the merger of seven former savings banks, but that the “integration process is still in its early stages” and “significant implementation risks remain”. On a regional level, Spain’s wealthiest autonomous community Catalonia asked for the state’s help in reducing its highly rising debt burden. As a matter of fact, the region’s annual interest payments have doubled in the past two years to EUR 2bn and Catalonia has to secure EUR 13bn in funds this year. In reaction to the degrading situation, the EUR fell below the 1.2500 mark -lowest since July 2010- and Spanish bond yields rocketed to 6.245%. European equity indexes edged lower but ended the day flat or slightly up as the news out of Spain was offset by the University of Michigan Index of consumer sentiment in the US rising to 79.3 in May from 76.4 previously. The bulls and the bears seem to be leading a war with a slight advantage for the bulls, as the selling momentum has been slowing and equity markets globally ending the week with gains. Market sentiment is also lifted by Italian PM Mario Monti’s determination to make Germany act in the EMU’s “common good”. Merkel’s austerity-first stance has been heavily criticized by her peers and appears to have lost support domestically as her CDU party scored the worst results since 1950 in North Rhine- Westphalia. But Monti asserted “Europe can have euro bonds soon” because he believes “a united Europe is in Germany’s interest”. In an interesting note, the bank of Tokyo Mitsubishi-UFJ asserts a Greek exit from the Euro area is imminent and markets are buzzing with rumors of a planned departure over the 2-3 June weekend. Today is Memorial Day in the US, and Whit Monday in Switzerland. There is little economic data to be released, with Italian business confidence coming in worse than forecast at 86.2 against 89.5 in the previous reading. 

Today's Key Issues (time in GMT):

2012-05-28T00:00:00 US Memorial Day
2012-05-28T00:00:00 EUR CH Whit Monday Holiday
2012-05-28T08:00:00 JPY It Business Confidence
2012-05-28T23:30:00 JPY JP Household Spending
2012-05-28T23:30:00 JPY JP Unemployment Rate
2012-05-28T23:50:00 JP Retail Sales

The Risk Today:

EURUSD EURUSD snapped back from 1.2496 its lowest level since July 2010, as market sentiment softened on news of pro-bailout Greek party heading all polls. The pair will look to retest 2012 low at 1.2625 after failing to close above it on Friday. Any subsequent rallies are likely to meet supply back up through 1.2824 (intraday range high), 1.2906 (support turned resistance), 1.3066 (8th May high), 1.3081 (gap high), 1.3122 (2nd May low), then 1.3179 (7th May pivot high). If the bullish momentum fades, the first supports are now standing at 1.2585 (Aug 10’ low), followed by 1.2531 (26th May 10’ low), 1.2455 (21st June 10’ high), 1.2331 (16th June 10 high) and 1.2152 (29th June 10’ low).

GBPUSD GBPUSD broke out of the downtrend overnight, and stretched out of its first resistance at 1.5703 before losing momentum and trading lower towards Friday’s close. If the pair manages to close above the 1.5603 support, we would expect the channel to gather further bids in the coming sessions with first resistance levels at 1.5987 (pivot high), 1.6014 (support turned resistance), 1.6207 (4th May high), 1.6302 (30th May high), 1.6335 ( 31st Aug 11’ high), 1.6455 (29th Aug 11’ high). The next support on the downside 1.5634 (15th Mar low), 1.5603 (12th Mar low) and 1.5515 (23rd Jan low).

USDJPY USDJPY appears to be consolidating around 79.52 and is failing to break the 79.92 resistance of the downward trend started in March. As for most of its peers, JPY strengthened against the USD. Our bias remains on the downside with first levels of support cluttered quite close together 79.11 (31st Oct 11’ reaction high & Fibo lvl) then 78.67 (26th Jan low) and 78.00 (Psychological lvl). Should the downtrend break up completely, the next resistances are located at 80.61 (2nd May high), 81.77/86 (failed corrective rally), 82.56 (6th April high), 82.99 (3rd April high), trigger resistance at 83.40 (27th Mar high), 84.18 (15th Mar high & extension target), 84.51 (15th Dec ‘10 high), then 85.50 (Fibo lvl from 101.00 to 75.60).

USDCHF USDCHF is still holding above the 0.9500 psychological level. On Friday we witnessed the formation of a Hammer candlestick which might signal an exhaustion of the uptrend that was complemented today by SNB’s Jordan comments on the franc. The CHF weakened against the EUR and the USD. However, we remain bullish and rallies are likely to meet sellers back up through 0.9592 (9th Jan high), 0.9602 (17th Feb 2011’ high) then 0.9776 (Feb 2011 high). If the upward move is reverted, first supports lie at 0.9500(psychological lvl), 0.9389 (range low), 0.9336 (resistance turned support), 0.9256 (16th April high), 0.9195 (7th & 11th May low), 0.9043 (2nd May low), 0.9009 (27th Feb high), 0.8955 (11th Nov ‘11 pivot), then stubborn barrier support at 0.8931 (24th & 29th Feb low).

Resistance and Support: