Euro Yen smashed as forex traders rush for safe haven on Greek referendum

Quick Recap

I guess when I thought that Europe would get a deal done on Greece I didn’t count on the greek prime minister torpedoing the talks himself. marc Chandler called it the act of an “inexperienced Greek government” taking “a reckless political gamble.”

That may be so but the impact has been a fractious open in Asia this morning.

Forex traders have taken the Euro down below the bottom of the wedge it’s been trading in for three months. There is a tiny recovery this morning to 1.0990 but at present it is making a fairly important downside break.

USDJPY has seen the biggest move and is down 2.53% at 134.81 as forex traders sell Euro and rush to the currency market version of a safe haven – the Yen. The commonwealth block, Aussie, Kiwi, CAD and Pound are all doing relatively well proving that for the moment the contagion outside Europe has so far been quarantined.

But as I wrote at Business Insider this morning:

This turn of events in Greece reminds me of 2008. Many of us at the coal face couldn’t believe that policy makers sleep-walked into letting Lehman Brothers fall over on the basis that Bear Stearns’ collapse had had such little impact 6 months before. We were further aghast when politics got in the way and the Senate voted down US Treasury Secretary Hank Paulson’s first bailout package. That’s when the GFC felt like it really kicked off and the S&P dropped something like 300 points in 5 days.

Key here is that there is no road map for times like these. Traders, investors, policy makers and central banks just make it up as they go. Some are trying to profit, others are trying to protect their capital, the banking system, or their reputations. It’s an ugly mess of competing interests and the short term winner is usually those who thrive best in uncertainty – that’s the traders.

Turning away from Greece for a sec its worth noting the collapse in Shnaghai stock prices on Friday and Thursday has scared the heck out of the PBOC which eased both monetary policy and the reserve requirements over the weekend.

The aim, according to the PBOC is to, “help stabilise growth, adjust structures and lower social financing costs.” The big question for Chinese traders is whether it can stabilise Shanghai stocks.

So stay nimble, account for volatility in your trading positions and sizing and watch the levels. Times like these can be fun and profitable if approached correctly. If not you land on the monopoly square which says “go straight to the poor house.”

Best of luck

On the day

On the data front today, hardly anything matters except what the news flow from Greece is. Greece’s path is locked in but will Europe rush back to the table to avoid a default tomorrow? In actual data, Japanese industrial production is due to be released, as is EU economic sentiment and German CPI. Tonight in the US it’s pending home sales.

Here’s the overnight scoreboard (9.04am AEST):

• Dow Jones up 0.31% to 17,946
• Nasdaq down 0.62% to 5,080
• S&P 500 flat at 2101
• London (FTSE 100) down 0.79% to 6,753
• Frankfurt (DAX) down 0.17% to 11492
• Paris (CAC) up 0.35% to 5,059
• Tokyo (Nikkei) down 0.31% to 20,706
• Shanghai (composite) down 7.38% to 4,193
• Hong Kong (Hang Seng) down 1.78% to 26,663
• ASX Futures overnight (SPI September) +10 points to 5,510
• US 10 Year Bonds +6 points to 2.47%
• German 10 Year Bonds +6 points to 0.93%
• Australian 10 year bonds up 8 to 3.16%%
• AUDUSD: 0.7633
• EURUSD: 1.0990
• USDJPY: 122.61
• GBPUSD: 1.5712
• USDCAD: 1.2344
• Crude: $59.63
• Gold: $1,185
• Dalian Iron Ore (September): 435

CHART OF THE DAY: EURJPY

Friday afternoon in the Asian trading wrap I said, ” A few days back I started talking about this breaking lower. It has started as you can see.But the move will accelerate if EURJPY breaks down and through the support zone which includes my slow moving and the 200 day average.”

We are there now and i’m taking half the position off.

Short term this one looks very oversold but I’m looking for a move to 132.85 in time. hence still 50% short.

Friday I said my preference was for USDJPY to “head lower” and so it was. 

I say this not to give myself a boost but to highlight, again if I need to, that charts are an important part of the decision process. The chart didn’t know what the Greek PM was going to do. But’s its funny6 how often fundamentals support price action – not the other way around.