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Daily Report: Euro Retreats on Greece, Yen Surges

January 27th, 2012 | Add a Comment

Euro pares some gains ahead of weekend as Greece and private sectors are still struggling to conclude a plan for the debt swap arrangement. IIF Chief Dallara said there was “some progress” after a two-hour meeting with Greek Prime Minister Papademos yesterday and work will continue today. Focus of yesterday and today was on legal and technical issues and the officials are aiming at completing the deal soon. It’s believed that the major obstacle, the coupon, rate is “parked” for the moment and the group will finish details of the overall package first. It’s also reported that ECB, despite its opposition, would be included in the deal to some extent. Greece is still targeting to submit its formal offer for the bond-swap deal by February 13, so as to meet the March 20 bond redemption deadline.

Meanwhile, the Japanese yen surges broadly today as Asian equities pares initial gain on profit taking after a week of strong rally. Also, the yen is likely pushed up by export led buying. Japanese Prime Minister Noda urged BoJ to take bold action to curb yen’s gain but markets just ignored the repeated message. While the rebound in yen crosses this week, on risk appetite, was impressive, key resistance levels are still intact. Those levels are 78.28 in USD/JPY, 102.53 in EUR/JPY and 122.76 in GBP/JPY. The fall in USD/JPY since Wednesday is particularly steep even though USD/JPY is still held in recent range. We’d like to point out that DOW is close to key resistance level at 12876 and is vulnerable to a pull back. If that happens, USD/JPY might be dragged down through 76.55 near term support.

On the data front, New Zealand unexpectedly posted trade surplus of NZD 338m in December, versus expectation of NZD -50m deficit. Japan national CPI fall less than expected by -0.1% yoy in December but Tokyo CPI dropped more than expected by -0.4% yoy in January. Retail sales rose 2.5% yoy in December. Looking ahead, Eurozone M3 and Swiss KOF leading indicator will be released in European session. From US, main focus will be on Q4 GDP advance report, which is expected to show 3.0% annualized growth, comparing to prior 1.8%.

Daily Pivots: (S1) 101.22; (P) 101.71; (R1) 102.01; More

EUR/JPY’s break of 100.97 minor support suggests that a temporary top is in place at 102.20 and intraday bias is turned neutral. Deeper retreat might be seen back to 4 hours 55 EMA (now at 100.18). Rebound from 97.03 is treated as a correction in the whole fall from 123.31. As long as 99.13 minor support holds, such rebound could extend and above 100.97 will target falling trend line resistance (now at 106.50). Nonetheless, break of 99.13 will indicate completion of such rebound and should flip bias back to the downside for retesting 97.03 low instead.

In the bigger picture, current fall from 123.31 is part of the down trend from 2008 high of 169.96 and should target 100% projection of 139.21 to 105.42 from 123.31 at 89.52. At this point, we’d anticipate strong support there to bring at least a rebound attempt, as it’s close to 88.96 all time low as well as100% projection of 123.31 to 100.74 from 111.57 at 89.00. Though, a break of 111.57 resistance is needed to be the first signal of medium term reversal. Otherwise, we’ll continue to stay bearish in the cross even in case of rebound.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
21:45
NZD
Trade Balance (NZD) Dec
338M
-50M
-308M
-307M
23:30
JPY
Tokyo CPI Core Y/Y Jan
-0.40%
-0.30%
-0.30%