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Waiting for Euro-zone Excitement to Settle

Waiting for Euro-zone Excitement to Settle

2012-02-21 15:19:00
Christopher Vecchio, CFA, Senior Strategist
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The Euro-zone summit failed to produce a meaningful rally, as it is clear that there are many impediments to clear before Greece receives its next aid package totalling €130 billion. For starters, Euro-zone parliaments need to ratify the agreement; private sector investors need to accept the 53.5 percent writedown; and will the Greek people actually accept the reforms (though, while this is the most important aspect, is being entirely overlooked by markets).

As such, I will wait for the dust to settle from the most recent Euro-zone conference before I initiate any positions. There are some observations across various pairs worth noting:

- AUDUSD: "Golden Cross" formed yesterday, with 50-DMA moving above 200-DMA. Typically, this is the sign of a constructive move higher for a bull run. It is worth noting that its counterpart, the "Death Cross" (50-DMA below 200-DMA) formed on October 4, the subsequent 2011 low. The AUDUSD is the worst performing major pair today despite the Euro-zone resolution and the Golden Cross.

- GBPJPY: Although the pair declined today, it continues to close in on the October high of 127.296. A break above can't be discounted given Yen weakness and optimism out of Europe, but congestion is what I'm looking for before the next big move (the pair is up over 600-pips in February).

- GBPNZD: The pair is closing in on its 2011 low of 1.8542. This level could break with relative ease should the Euro-zone summit yield an exceptionally bullish scenario. I'll be looking to sell a breakout as more easing from the Bank of England hasn't been priced into the GBP yet, in my opinion.

- EURCHF: With the pair flirting with the 1.2100 handle, I'll be looking to buy on a dip below 1.2050, but closer 1.2030, the 2012 low. Reward/risk is high, given the monetary and political pressures on the Franc.

- EURUSD: Could a Triple Top be in the makings? False breaks above the 1.3300 handle have offered a decent opportunity to scalp some shorts, and with a lack of bullish reaction earlier today, any rallies above said level should look to be sold, on a fundamental basis. The intermediate technical structure remains bullish, however, despite the recent consolidation in the short-term.

- USDCHF: Likely to come under further pressure on a Euro-zone resolution - this includes parliaments ratifying the agreed upon measures (that will be the next big leg down in the U.S. Dollar, in my opinion). The pair is unlikely to test its post-SNB peg low of 0.8567 without bouncing off of the 200-DMA at 0.8763. I'll be looking to buy at this level.

Any other trade updates can be viewed in the real time news feed, or you can follow me on twitter at @CVecchioFX for trade thoughts and other macroeconomic musings.

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