FX Markets Waiting for New Information

USD was marginally higher as risk appetite shifted lower on a variety of second tier headlines. Looks like the summer lull might be coming in early this year. The FX market seems to be stuck in limbo with little new information to digest and we’re getting fatigued with all the comment-analysis regarding the EU sovereign debt crisis. EURUSD looks content consolidating between the 1.4000 and 1.41300 range while USDJPY remains trapped in daily cloud cover bouncing around 81.50 and 82.20. Commodities have also paused - asking for direction with crude WTI ranging between $95 and $100 bll and Gold lingering around $1525.
S&P futures gave Asian regional indices a bearish tone as the US futures (in large volume) slipped below the 100da MA. Risk correlated FX trades followed with the EUCHF falling to 1.2326 as the typical safe haven trades in USD, JPY and CHF benefited. So what was the actual trigger of today’s conservative trading, take your pick.

Unsubstantiated rumors of snap elections in Spain and Greece, S&P statement that China’s banks face a profit squeeze & could noticeably weaken tightening moves, EU's Rehn comments that “Greek debt could be ‘reprofiled’ and debt maturities could be extended” and a WSJ article which reports that roughly $17 bn in civil lawsuits are flying about over wrongful foreclosure practices.

All of these are ultra-short term and will undoubtedly be forgotten in a few hours. We suspect that the Forex market is clearly focused on the impending Mid July – early august deadline where Greece is expected to run out of cash. The solution is still very much up in the air and begin hotly debated publicly. In recent days, just about everyone in Europe has stepped up and voiced their opinion suggesting a wide diversion among policymakers.
The ECB’s Noyer said that Greece has no choice but to implement the EU/IMF rescue program demand in its entirety including larger privatization to slash debt. While Greek opposition leader Samaras stated they would reject new austerity plans, the ruling party controlling said they may have to.
And what’s a day without a comment from the rating agencies as Moody’s said that Italy and Belgium would be next in line if Greece defaults. Our base case scenario remains that Greece will accept another EU / IMF bailout and the build up to this announcement will be positive for risk appetite.

We are now looking for now is a long risk position with carry and a commodity related kicker. Traders like AUDJPY and NOKJPY – these look exceptional appealing in the mid to longer term trades.
UK releases GDP report today followed by export and import data while the US will release durable goods orders, house price index and oil inventory data. ECB’s Stark and Fed’s Kocherlakota would hold speeches today. Most of the focus would still be on EU debt issues as investors fear contagion spreading to other nations.

Today's Key Issues (time in GMT):

08:30 GBP GDP (Q1 P) q-o-q 0.50% 0.50% 0.50%
08:30 GBP GDP (Q1 P) y-o-y 1.80% 1.80% 1.80%
12:00 EUR ECB's Draghi, Liikanen to Speak
12:20 USD Treasury's Geithner Speaks
12:30 USD Durable Goods Orders (Apr) -2.50% prior
12:30 USD Durables Ex Transportation (Apr) 0.50% prior
12:40 GBP BoE's Andrew Sentance speaks
14:30 EUR ECB's Stark Speaks
17:30 USD Fed's Kocherlakota Speaks

The Risk Today:

EurUsd Yesterday’s recovery bounce only got as far as 1.4133 before the sellers once again stepped back in, and this morning we find the pair hovering just above the 1.4000 level once more. The last few days price action does not, in our view, provide a very clear insight into whether the next big move will be up or down, so for now we maintain our bearish bias and look to sell on rallies. Decent support is expected around 1.3970-80, where we not only have Monday’s low, but also the 17-18 Mar lows and 100-day moving average – all of which have the capacity to attract buyers. Beyond there, next supports are 1.3940-45 (currently downtrend support), 1.3856 (15 Mar low), 1.3744 (2 Mar low), 1.3705 (24 Feb low) and 1.3683 (200-day moving average). Key resistance levels stand at 1.4133 (yesterday’s high), 1.4346 (20 May high), 1.4441 (9 May high), 1.4500 psychological resistance, 1.4588 (6 May rebound high) and 1.4764 (former support last seen in early May).

GbpUsd Although GBPUSD enjoyed a temporary respite from recent selling pressure yesterday, the recovery rally could only get as far as 1.6209 highs (a good 40 pips away from mounting a serious challenge on the overall bear trend channel), and since then the bears have stepped back in to reduce the gains. As planned in yesterday’s report, we used the brief look above 1.6200 as an opportunity to re-load our short positions, and now resume our focus on another visit below 1.6100. On the next push to the downside, supports are seen at 1.6060 (Monday’s low), 1.6000 (psychological support), 1.5973 (1 Apr low), 1.5937 (28 Mar low) and the hugely significant 200-day moving average 1.5941. In the meantime, the upper edge of the current 3-week downtrend channel acts as the first resistance level (1.6220-30 today), so we are using that trend line as a guide for our trailing stop. Further resistance is eyed at 1.6309 (13 May high), 1.6380 (12 May high), 1.6517 (11 May high), and 1.6574 (4 May high).

UsdJpy USDJPY is still engaged in a very slow and laboured ascent within its 3-week uptrend channel, and yesterday managed to re-test the 19 May highs around 82.24. Unfortunately, rather than bursting higher, the bulls ran out of steam at 82.21, and the pair has now drifted back below 82.00. Although the upside momentum is pretty weak, the uptrend channel remains valid and therefore expect buyers to materialize around 81.55-60 today to keep the pair elevated. The key resistance level above 82.24 (the aforementioned 19 May high) will be a zone of supply around 82.68-78 which represents the triple force of 200-day moving average, 27 Apr high and the upper edge of current uptrend channel. Further levels include 83.26 (18 Apr high), and 83.79 (15 Apr high). If at any point the trend line support is negated, then watch for next supports to come into play around 81.33 (Monday’s low), 80.95 (18 May low), 80.16 (10 May low), 79.57 (5 May low), 78.26 (17 Mar low), and the all-time low 76.40.

UsdChf USDCHF has withdrawn from its 0.8893 highs seen earlier this week, and is now consolidating around the 0.8800 level once more. As a reminder, we are short at 0.8800 playing the head & shoulders pattern on the hourly chart, and are aiming for a target on the downside of approximately 0.8660. Given the disappointing progress of this pattern so far however, we have implemented a tight stop at 0.8850 to limit losses in case of another bullish surge. On the topside, next resistance comes into play at 0.8893 (yesterday’s high), followed by 0.8941 (16 May high), 0.9011 (19 Apr high) and 0.9105 (11 Apr high). Supports stand at 0.8783 (yesterday’s low), 0.8748 (Friday’s low), 0.8708 (10 May low), and 0.8676 (6 May low). Below our 0.8660 target the only support remaining will be the all-time low 0.8554 (recorded on 4 May).