Euro Surges Through 1.3000 Barriers on Confidence for Greek Deal

• Talk of Greece resolution helps to bolster risk appetite and Euro gains
• European Stability Mechanism also in focus
• Technical studies still suggest additional Euro strength
• Eur/Jpy cross could also be looking to establish short-term base
• Aussie and Kiwi strength in question given softer data
• Check out new “Market Vibrations” report to get intraday updates from European desk

Will Greece default or not? We have been seeing a lot of back and forth on the issue over the past few sessions. Certainly it looks as though bulls are winning out and there has been encouraging chatter in Europe on Monday which would suggest that a favorable outcome/agreement is on the horizon. German FinMin Schaeuble reaffirmed this sentiment and offered some upbeat comments after saying leaders were indeed on a good path to crisis resolution. Also getting some attention was the news that Germany was discussing the possibility of running the EFSF and ESM in parallel. Today’s 16:00GMT Eurozone FinMin meeting will be in focus, and with the ball in the court of the EU and IMF at this point, we anxiously wait for any signs that will in fact paint a brighter picture for the region which allow Greece to avoid default.

Relative performance versus the USD Monday (as of 11:51GMT)

1. NZD +0.81%
2. AUD +0.71%
3. CHF +0.67%
4. EUR +0.56%
5. CAD +0.42%
6. JPY +0.13%
7. GBP -0.03%

Technically, the Eur/Usd market remains constructive in the short-term, and we see room for additional upside over the coming days after the market finally put in a convincing bullish reversal week. While we remain bearish on the more medium and longer-term horizons, look for gains towards the 1.3200-1.3500 area before the market considers the next major lower top and fresh downside extension.

Eur/Jpy could also be poised for some decent gains ahead after bottoming out by fresh multi-year lows by 97.00 in the previous week before reversing sharply to put in a compelling bullish outside week formation. From here, we see potential for corrective gains to extend back towards the 105.00 area over the coming days.

Moving on, both Aussie and Kiwi remain very well bid, but we continue to take these moves with a grain of salt and would recommend looking for opportunities to fade these commodity currencies on any additional rallies. Data out of both economies have certainly not been currency favorable, with New Zealand producing much softer inflation in the previous week, while Aussie employment was highly disappointing and inflation reading on Monday were softer.

TECHNICAL OUTLOOK

EUR/USD: The market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 50 and 100-Day SMAs in the 1.3100-1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day SMA looks to be on the verge of crossing back above the 20-Day SMA to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2750, while only back under 1.2620 negates short-term bull bias. A bullish reversal week further supports short-term constructive outlook.

USD/JPY:Despite the latest pullbacks, we continue to hold onto our constructive outlook while the market holds above 76.55 on a daily close basis. We believe that any setbacks from here should be limited in favor of a fresh upside extension back towards 79.55 over the coming weeks. Look for a break above 78.30 to confirm and accelerate, while only a daily close below 76.55 negates and gives reason for pause.

GBP/USD: The market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. As such, from here, we see risks for additional setbacks towards 100-Day SMA by 0.9100 from where a fresh higher low is sought out. Ultimately, only a sustained break back under 0.9000 would negate constructive outlook and give reason for pause. Dips towards the psychological barrier should therefore be used as formidable buy opportunities.

--- Written by Joel Kruger, Technical Currency Strategist

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