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Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

2011-05-10 11:43:00
Joel Kruger, Technical Strategist
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Trade has been dominated by speculation surrounding the Greek situation; ECB’s Nowotny got the ball rolling early after suggesting that the size and scale of Greece’s problems have been underestimated by the international community. However, sentiment quickly shifted as a senior Greek official said that a new deal providing Greece with as much as 60 billion euros was being discussed. This story was quickly dismissed by a senior Euro-zone source and the Greek finance minister. This rumour and counter-rumour style, we remind readers, took place in the run up to Greece’s original bail-out, and Ireland’s, and Portugal’s.

Relative Performance Versus the USD on Tuesday (as of 11:30GMT)

  1. CAD +0.14%
  2. AUD -0.17%
  3. EUR -0.22%
  4. JPY -0.36%
  5. GBP -0.41%
  6. NZD -0.43%
  7. CHF -0.65%

Price action, as a result, has been choppy this morning amid rumours and denials with the euro spiking on the initial talk of more aid being forthcoming, it fell back, however, once this was denied. The euro remained decently bid on the crosses through most of this turbulence but we urge caution amid all this debt default, debt restructuring and even Greek EMU exit talk, since there is rarely smoke without a fire.

Sticking with Greece, EU, ECB and IMF experts arrived in Athens today to audit the cash-strapped Greek government finances and are set to report their findings before the week is out. German Chancellor Merkel urged a speedy outcome of the current mission since decisions regarding any easing of Greek bailout terms will be contingent on their findings. ECB's Mersch was less forgiving suggesting that debt restructuring goes against the basic market principle of paying back debt, he wants to avoid a culture whereby missing debt payments is acceptable. ECB’s Bini-Smaghi, meanwhile, suggests that Greece sell its assets, highlighting the fact that it has capital.

Moving on, Swiss inflation released this morning surprised to the downside and remains at tepid levels which is likely to push any tightening further down the road. The franc was relatively unmoved by the likely scaling back of monetary tightening plans as demand for safety from the EMU periphery problems contained franc losses.

Looking ahead, the Greek situation is likely to remain the main driver into the North American session. The US focus will be on second tier data highlighted by US Import Price Index (1.8% expected) at 12:30GMT and Fed Speakers Duke and Lacker. US futures are pointing to a higher open while commodities diverge with oil lower and gold higher.

ECONOMIC CALENDAR

Morning_Slices_body_cal.png, Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

TECHNICAL OUTLOOK

Morning_Slices_body_eur.png, Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

EUR/USD: Setbacks have stalled for now ahead of critical support in the form of the higher low by 1.4155 from 18Apr. At this point, it sis difficult to determine whether the market will attempt to retain the underlying bullish momentum and look to establish a fresh higher low above 1.4155, or continue to falter below 1.4155 and force a shift in the broader structure. For now, we would use Tuesday’s range as a short-term directional gauge. A break back above Tuesday’s high at 1.4445 will be needed to encourage bulls, while back below Tuesday’s low at 1.4255 will provide more confidence for bears.

Morning_Slices_body_jpy2.png, Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

USD/JPY: Despite the latest slide, we continue to retain a constructive outlook for the market so long as it holds above the daily Ichimoku cloud on a weekly close basis. Ultimately, only a sustained break back below the cloud would negate constructive outlook. A break and close back above 81.00 would confirm outlook and accelerate gains, with daily studies turning up from oversold levels. In the interim, we remain on the sidelines.

Morning_Slices_body_gbp2.png, Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

GBP/USD: The latest pullback has now resulted in a test of some rising trend-line support off of the late March lows, and as such, we will stand aside for now to see how the market responds to the trend-line. The 50-Day SMA has managed to support additional declines for now, but a break below would confirm a trend-line break and open deeper setbacks towards 1.6000. Inability to break below the 50-Day would open the door for a resumption of gains initially back towards the 1.6600 area.

Morning_Slices_body_swiss1.png, Price Action Turns Choppy As Greek Rumours Fly; ECB Officials Rule Out Restructuring

USD/CHF:The latest break to fresh record lows below 0.8600 is certainly concerning and threatens our longer-term recovery outlook. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks for an eventual break back above parity. Look for the market to hold above 0.8500 on a daily close basis, while only a break and weekly close below 0.8500 ultimately delays outlook. The bullish reversal over the past few days is encouraging for recovery outlook, though the market will need to continue to extend gains beyond 0.8800 for confidence to build.

FLOWS

A semi-official account has dominated selling in Eur/Usd with an ACB seen on dips for diversification purposes along with Russian accounts and real money types. An ACB and Far East account are noted buyer in Cable.

Written by Joel Kruger, Technical Currency Strategist

If you wish to receive Joel’s reports in a more timely fashion, email jskruger@dailyfx.com and you will be added to the distribution list.

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