Greek Debt Negotiations And Risk of Default Key Theme in Early Week
- Greece default potential at the forefront of investor minds
- 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
Will Greece default or not? This is the question on everyone’s mind, and after it looked as though the country may indeed avoid default late in the previous week, developments over the weekend diminished those probabilities and we are once again left with a less certain and more unsettled feel which has negatively impacted the Euro thus far on the day. 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.
Other considerations at today’s meeting will be additional details of the new European Stability Mechanism. There has been a good deal of debate in this area with country’s like Italy and Spain calling for massive boosts in the rescue fund, while Germany has been less inclined to want to step up to the plate and bear the burden.
Technically, even with the latest pullback in the Euro on Monday, the 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. Daat 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.
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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