Risk Asssets Back Under Pressure on Moody's; Yen Offered on BOJ Move
- Greek saga continues as bailout still in question
- Moody’s downgrades Italy, Portugal and Spain
- Moody’s downgrades outlook for UK economy
- Bank of Japan announces fresh easing measures
Despite all of the progress on Greece, market participants are still uncertain over whether the beleaguered Eurozone nation will in fact be able to secure its second bail-out. There are still a number of hurdles that need to be overcome, and with negotiations already taking so long to come up with the most recent agreement on austerity, there is certainly good reason to believe that things might go all that smoothly.
Risk appetite has already been negatively affected by these developments and then exacerbated on the latest Moody’s downgrade of Italy, Spain and Portugal. The downgrades further remind investors that even with a resolution in Greece, there are still a number of structural problems in the Eurozone that will need to be remedied. Elsewhere, Moody’s has also been out taking action on the UK and assigning a negative outlook to the country.
Moving on, the Yen has been very well offered on the day thus far despite the risk negative developments, with the currency finding renewed offers on the back of the announcement from the Bank of Japan that they will boost long-term JGB and asset purchases by Y10Trillion. Although the central bank has one ahead and left the call rate unchanged, the move to increase quantitative easing measures is certainly acting as the driver for the underperformance in the Yen on Tuesday. Other currencies on the defensive include the risk correlated Australian and New Zealand Dollars.
EUR/USD: The latest multi-session consolidation has been broken, with the pair clearing resistance at 1.3235 and opening a test of the 100-Day SMA just over 1.3300. Given the recent consolidation range of approximately 200 points (1.3025-1.3235), we will leave the door open for a move towards the 1.3450 area before the market eventually looks to stall out and carve a more meaningful lower top ahead of broader underlying bear trend resumption. A break back below 1.3025 is now required to officially alleviate immediate topside pressures.
USD/JPY:The market could once again be looking to carve an interim base after setbacks stalled shy of the record lows from October by 75.55. The latest daily close back above 77.00 should do a good job of alleviating immediate downside pressures and reintroducing longer-term basing prospects. From here, look for an acceleration of gains back through next key resistance by 78.00-78.30 further up which represents the 200-Day SMA and the 2012 highs. At this point, only back under 76.50 would negate outlook and give reason for concern.
GBP/USD: Gains have stalled out just shy of the 200-Day SMA for now and the market looks to be entering a fresh period of consolidation before considering the next major move. Key levels to watch above and below come in by 1.5930 and 1.5700 respectively, and a daily close above or below will be required for clearer directional bias. A close below 1.5700 could open the door for some broader underlying bearish resumption, while back above 1.5930 exposes the October highs by 1.6170 further up.
USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday corrective activity before the next major upside extension beyond 0.9600 and towards parity. However, look for any setbacks to be very well supported into the 0.9000 area, with the level representing a key psychological barrier and also coinciding with the lower Bollinger band. For now, a break back above 0.9265 will officially be required to confirm outlook and alleviate immediate downside pressures.
--- Written by Joel Kruger, Technical Currency Strategist
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