Catastrophe Averted for Greece, FX Reaction is Muted

Forex News and Events:

What many analysts feared did not materialize over the weekend. Even though 26.9% of Greeks showed their support for anti-bailout party Syriza, the majority voted for New Democracy with 29.7 percent of votes, granting the winner 50 extra seats in the government to reach 129 out of 300. New Democracy had initially contested the first bailout package but changed its positioning for the second package and worked to form a coalition government after the first round of elections on May 6. EZ Finance Ministers issued a joint statement immediately after the results saying they were still committed to helping Greece and pointing to some malleability from the part of Europe as the Troika would be able to “exchange views with the new government on the way forward”. EU’s Corbett said today in a Bloomberg interview that “some adjustment may be possible” for Greek aid. The continuous statements point to the fact that even though Greece is expected to run out of funds early July and that it is almost impossible for the country to fund itself on bond markets, the situation is not extremely worrying. EURUSD did jump during the Asian session near a one-month high before settling lower around 1.2645. The reason for that is that we moved from a realm of known unknowns regarding the Greek situation, to that of unknown unknowns. As a matter of fact, investors were expecting more mixed results and instead find themselves questioning the next series of events affecting the Greek issue. First is the question of the formation of a coalition government and the participating parties as sources say mainstream pro-bailout Pasok is likely to refuse to join a government that doesn’t include other parties in a tactical move to avoid losing further electoral support. Second, comes the idea that Greece could still be leaving the EU, the formation of a government notwithstanding, as many parties are still fighting to alter if not annul the Memorandum of Understanding that gave way to Greece’s bailout. European equity markets witnessed a brief rally around opening time before reversing their course over concerns about the Spanish issue. Sovereign spreads widened this morning and Spanish yield jumped 26 basis points to 7.13%. We are skewed towards a headline driven risk appetite for the next few days, with focus shifting rapidly between the evolution of the Greek situation and the event occurring in Spain and Italy. We suspect the effect on the EUR and other high-beta currencies will continue to be muted and central banks should see further build-up of investor risk aversion before triggering emergency monetary procedures.

Today's Key Issues (time in GMT):

2012-06-18T12:30:00 CAD CA Foreign Securities Purchases
2012-06-18T14:00:00 USD US NAHB Housing Market Index
2012-06-18T23:01:00 GBP UK Nationwide Consumer Confidence

The Risk Today:

EURUSD The outcome of the Greek elections took a massive weight off of “risk appetite” and specifically the EUR, triggering a relief rally across the board. EURUSD violation of triangle pattern and resistance at 1.2672 (13th Jan low) was a bullish development. However, by early Europe the pairs rebound rally is already failing to attract fresh bids. Since the downtrend remains intact, so our bias remains bearish. We are now focused on a reversal challenge to 1.2672 support, which if broken would trigger a broader weakness to 1.2438. Further rallies are likely to meet minor resistance back up through 1.2824 (22nd May 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). First supports beneath us lie at 1.2438 (5th June low), 1.2288 (1st June low) 1.2147/52 (29th June 10’ low) then 1.1862 7th June low).

GBPUSD GBPUSD surged to 1.5743 (taking-out 1.5660 resistance) on the positive Greek election results but since the peak the bulls have failed to gather more bids. The overall trend remains bearish, so we anticipate the next leg for the pair will be lower. However the buildup of support below, will slow the expected sell-off. Any subsequent dips for the pair will meet support at 1.5650 (30th May high), 1.5600 (Double top on 7th and 12th June), 1.5454 (double touch on 12th June), 1.5405 (8th June low), 1.5374 (6th June low), 1.5321 (5th June low), then 1.5268 (13th Jan low). If the pair can gather bids in the coming session the next major resistance will be found at 1.5775 (23rd May high), 1.5852 (22nd May high), 1.5954 (1st Mar pivot high), 1.6066 (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).

USDJPY Currently USDJPY bullish momentum shows no sign of waning, however, there is the potential to consolidate between 79.15 and 79.52. After this short-term bias, we are awaiting a break above 79.52 for an extended move towards 80.60. First levels of support are thinning out now with demand located at 79.16 (14th June low), 78.60 (6th June pivot low), 78.00 (Psychological lvl), 77.66 (1st June low), 77.36 (13th Feb low) then 76.58 (3rd & 17th Jan low). The next resistances are located at 79.52 (15th June pivot high), 79.79 (7th June high), 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.

USDCHF USDCHF as gapped on the open reflecting the positive outcome in Greece, however the bulls were quick to close the gap. The overall trend remains bearish; so expect that once the gap is filled in, the next move will be lower. There is heavy speculation regarding the stability of the EURCHF minimum exchange rate so traders should be mindful of the 1.2000 level. Keys supports on the downside noted at 0.9479 (8th June low), 0.9335 (resistance turned support), then 0.9183 (7th & 11th May low). If we see further rallies, first resistance levels should be at 0.9596 (13th June high), 0.9693 (4th June pivot high), 0.9774 (Feb 2011 high), 1.0067 (1st Dec 11’ pivot high), then 1.0294 (10 Sept 10’ high).

Resistance and Support: