FX Markets Just Drifting

Forex News and Events:

With the US on holiday today and Asia taking tomorrow off, FX markets have been left to drift. Markets started the day on a positive note as there were solid trade numbers from China over the weekend, indicated that exports were growing at 11.6% YoY, and the Trade balance for October had improved to $32 bn. However, news from Greece quickly replaced the fragile optimism. In Greece, coalition parliament approved the 2013 austerity budget by a majority of 167 votes to 128--while this was another major hurdle removed, it was clear that no aid tranche would be released today. German FinMin Schaeuble stated that the Eurozone would not bow to Greek aid time pressures. A significantly negative comment considering that Greece has a €5bn debt repayment maturity on Friday and there are now real concerns as to how this will debt will be funded. With peripheral yields rising and the ECB expectations for triggering the OMT, entrenched traders will be watching events in Greece very carefully this week.
Importantly, ECB Weidmann stated that it appeared to him that Europe’s politicians have already decided to continue to fund Greece which suggests that the rescue cash will come in time. So right now with the economic calendar empty, markets are just waiting for any news out the Eurogoups meeting in Brussels. An unnamed EU official stated that the Eurogroup has a “clear picture of Greece's cash needs” and that there would be no Greek default this week. Longer term, we remain significantly bearish on Greece's prospects. While this third austerity budget was passed with much fanfare (as with the rest) we don't know if budgets account for sleight of hand rather than real cuts. We doubt that it can be executed correctly. It’s only a matter of time before Greece’s whopping 190% debt to GDP tips the nation over. The real question is how many more handouts is Germany willing to provide before they say enough is enough. It will be very interesting to see how Greece manages to roll over it debt this Friday. In Switzerland, EURCHF fell to 1.2054 a two month low, a clear indicator that the current weakness in risk appetite is a European derived event. SNB Zurbruegg stated that the economy could slow below 1% in 2012. With European peripheral yields heading higher, the lack of clean solutions in Greece might force Spain to ask for bailout. In Japan, PM Noda stated that downside pressure on GDP was severe and the government would respond with sense of urgency. This come on the back of soft GDP figures as Japan Q3 GDP -0.9% q/q, -3.5% y/y -0.9% and -3.4% exp.

Today's Key Issues (time in GMT):

2012-11-12T00:00:00 USD Veterans day

The Risk Today:

EURUSD As the saying goes “if it wasn’t for bad news, the Euro would have no news.” EURUSD traded down to 1.2710 on disappointed news from Brussels, before bargain hunters stepped in. However the pair still feels heavy and with the MACD crossing over the zero threshold, RSI trending downwards, and solid close below 1.2740 support we now expect an extension of weakness to 1.2630. The next supports are eyed 1.2630 (3rd July high & 100d MA), 1.2463 (31st Aug low), and 1.2386 (14th & 17th Aug high). The first level of resistance are located at 1.2819 (200d MA), 1.2956 (2nd Nov high), 1.3026 (25th Oct high), 1.3138 (17th Oct high), 1.3172 (17th Sept high) and 1.3283 (1st May high).

GBPUSD GBPUSD has traded down to 1.5879 negating support at 1.5908. Despite all the bearish signals we would watch of a bullish correction before reloading on shorts due to the support region just below and developing bullish harami (reversal signal). The support zone is located at 1.5850 / 60 (100d & 200d MA), 1.5745/53 (30th July pivot & 100d MA), 1.5665 (uptrend channel floor), 1.5564 (8th Aug low), 1.5656 (intraday low),1.5458 (26th July low), 1.5405 (8th June low), 1.5390 (6th June low), then 1.5266 (13th Jan low). Above 1.6042, watch for next resistance to come into play at 1.6079 (downtrend top), 1.6143 (20th April & 11th May high), 1.6236 (30th April high) and 1.6454 (29th Aug ’11 top).

USDJPY USDJPY’s Friday sell-off hit a low of 79.47, making this correction significantly deeper then we had anticipated. However, the sustained development of uptrend channel makes us cautiously constructive on our bullish bias in the short- to medium- term. However, we will keep our eyes on MACD and RSI shifting downwards. On the downside, some support is eyed at 79.07 (9th Nov low), 78.75 (8th Oct high), 77.94 (Symmetrical triangle floor), 77.12 (13th Feb low) then 76.03 (3rd & 17th Jan low). Above us, solid resistance remains at 80.62 (2nd May high), 81.60 (failed corrective rally), 82.56 (6th April high), 82.99 (3rd April high), trigger resistance at 83.40.

USDCHF Technicals really have not shifted today other then adjusting the upper channel uptrend higher. USDCHF continued its gradual climb higher, taking us to a high of 0.9499 (taking out our 0.9484 target). Overall momentum indications are all providing bullish signals (Stoc & MACD) indicating that the reversal off 0.9215 was more then a mere correction. Further recovery above the 0.9484 (10th Sept high) would indicate a move to 0.9610. The next levels of resistance are located at 0.9484 (10th Sept high), 0.9580 (7th Sept high), 0.9610 / 20 (26th Aug high), 0.9810 (10th Aug high & uptrend channel), 0.9900 (2nd Aug high), and 1.0000 (psychological resistance). The first levels of support should be located at 0.9442 (20th Oct high), 0.9277 (downtrend channel top), 0.9240 (19th Oct low), 0.9194 (7th & 11th May low) and 0.9300 (11th May high).

Resistance and Support: