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Greek PSI Developments and US NFPs Likely Sources of Next Volatility

Greek PSI Developments and US NFPs Likely Sources of Next Volatility

2012-02-03 06:01:00
Joel Kruger, Technical Strategist
Share:
  • Euro needs break above 1.3235 or below 1.3025 for directional bias
  • Price action in EUR/USD to dictate direction of broader markets
  • Greek PSI developments could be the source for next round of volatility
  • Market participants also focused on US NFPs

Euro gains have stalled out, and in the end, it has been a week of consolidation in the markets. EUR/USD remains the key market to watch for broader directional insight, and the critical short-term levels to watch above and below come in by 1.3235 and 1.3025 respectively. A break and close above 1.3235 will open the door for the next upside extension towards the 100-Day SMA by 1.3350, while a close back under 1.3025 could suggest that a fresh medium-term lower top is in place in favor of bearish resumption.

Fundamentally, there are any number of catalysts on the horizon which could spark the next round of volatility. The ongoing Greek PSI talks are most probably at the forefront of investor minds and any clear resolution here will likely inspire a fresh round of Euro bids through the 1.3235 resistance. Conversely, a breakdown in talks which leads to the default of Greece, will likely open a bout of risk liquidation which will weigh on the Euro back below 1.3025. Another event on traders’ minds is today’s US NFP report. Overall, we have been seeing a steady recovery in US economic data, and a number which deviates far from expectation on either side, could very well open a wave of volatility which results in a break of the mentioned levels in the Euro.

ECONOMIC CALENDAR

Greek_PSI_Developments_and_US_NFPs_Likely_Sources_of_Next_Volatility_body_Picture_5.png, Greek PSI Developments and US NFPs Likely Sources of Next Volatility

TECHNICAL OUTLOOK

Greek_PSI_Developments_and_US_NFPs_Likely_Sources_of_Next_Volatility_body_eur.png, Greek PSI Developments and US NFPs Likely Sources of Next Volatility

EUR/USD: Although gains in this market have been quite impressive in recent days, the price action is still classified as corrective with the market locked in a broader underlying downtrend. From here we would still leave the door open for additional upside to test the 100-Day SMA by 1.3350, but any additional gains should be well capped below 1.3500 on a daily close basis in favor of the formation of the next major lower top ahead of bearish resumption. Ultimately we see risks for a move back below the 2012 lows at 1.2620 and towards the 1.2000 area over the coming months.

Greek_PSI_Developments_and_US_NFPs_Likely_Sources_of_Next_Volatility_body_jpy2.png, Greek PSI Developments and US NFPs Likely Sources of Next Volatility

USD/JPY:The higher platform that we had been looking for by 76.55 has now been broken with the market eyeing a direct retest of the record lows from October at 75.55. Overall, we will still be looking for opportunities to be buyers on dips, with longer-term studies warning of a cycle low at some point over the coming months. Our strategy will be to wait for some oversold daily studies and then look to take another shot at the long side. A break back above 76.80 will be required at a minimum to relieve downside pressures.

Greek_PSI_Developments_and_US_NFPs_Likely_Sources_of_Next_Volatility_body_gbp2.png, Greek PSI Developments and US NFPs Likely Sources of Next Volatility

GBP/USD: The latest break back above 1.5800 now compromises a multi-week consolidation, with the pair now looking to break towards next key resistance by 1.6000. However, despite the upside move, we see any additional gains from here as limited and would look for a topside failure somewhere ahead of 1.6000 in favor of a bearish resumption. Daily studies confirm and look stretched and selling rallies above 1.5900 over the coming sessions is the preferred strategy.

Greek_PSI_Developments_and_US_NFPs_Likely_Sources_of_Next_Volatility_body_swiss1.png, Greek PSI Developments and US NFPs Likely Sources of Next Volatility

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. However, with the latest consolidative declines now finally testing the 100-Day SMA, any additional downside should be limited in favor of a fresh upside extension. Ultimately, only a daily close back below 0.9000 would give reason for concern. Alternatively, a close back above 0.9250 would alleviate immediate downside pressures and reaffirm outlook.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

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