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Mid-Day Report: Euro Rally Lost Steam as Greek Bailout Boost Faded

February 21st, 2012 | Add a Comment

The boost from Greece bailout deal to Euro was relatively brief as the common currency fails to take out recent high of 1.3321 against dollar and retreated. EUR/JPY also dips mildly after jumping to 105.98 earlier today. Major European indices are in red at the time of writing but down less than -1% so far. US stock futures point to mildly higher open. There are some doubts from the market on implementation of the austerity plan in Greece. Also, sentiments are mildly weighed down by OECD head Gurria’s comment that the Greek deal was two years late. Also, Gurria reiterated that a $1T fund is at least needed in Eurozone to prevent Greece’ problems in spreading into other Eurozone states.

The latest news is that EU finance ministers have eventually reached an agreement on the second Greek bailout package. The deal requires Greece to bring its debt down to 120.5% of GDP by 2020 from over 164% currently. The agreed reduction was similar to what was requested by the IMF. Moreover, according to Jean-Claude Juncker, the prime minister of Luxembourg, private sector bondholders were expected to incur losses of 53.5% of nominal face value of their Greek bond holdings, up from the previously expected 50.0% nominal write-down. Investors welcomed the news and the euro jumped against the US dollar after the announcement. More in EU Agrees On Second Greek Bailout Package Worth Of 130B Euro.

The RBA released minutes for the February meeting, explaining reasons for its decision to leave the policy rate unchanged at 4.25%, instead of a reduction of -25 bps as expected by the market. The central banks appeared comfortable with the domestic economic developments though these might also be affected by the sovereign debt crisis in the Eurozone. It appears that the central bank will stand on the sideline in coming months but we are still of the view that a rate cut will materialize later this year especially if he AUD continues its recent advance. More in RBA Feels Comfortable With Current Monetary Stance As Growth Will Be Close To Trend.

On the data front, Canada retail ales dropped -0.2% mom in December while ex-auto sales was flat. Wholesale sales rose 0.9% mom. UK Public sector net borrowing came in larger than expected at GBP -10.7b in January. Swiss trade surplus shrank to CHF 1.55b in January. Japan all industry activity index rose 1.3% mom in December.

Daily Pivots: (S1) 1.3182; (P) 1.3229 (R1) 1.3288; More…

EUR/USD’s rebound from 1.2974 lost some momentum ahead of 1.3321 and remains bounded in range. Intraday bias stays neutral for the moment. On the upside, above 1.3321 will resume the rebound from 1.2625 and target 61.8% retracement of 1.4246 to 1.2625 at 1.3627. On the downside, below 1.2974 will revive the case that rebound from 1.2625 is finished and flip bias back to the downside for this support level.

In the bigger picture, price actions from 1.6039 are unfolding as a consolidation pattern in the long term and is in progress. Fall from 1.4939 is a falling leg inside the pattern. It’s hard to anticipate the length of a leg of any complex corrective pattern. Also, price actions would likely remain choppy and indecisive with misleading momentum indicator readings. But after all, overall picture still favors deeper fall to 1.1875 support before the consolidation pattern completes. Though, sustained trading above 55 weeks EMA (now at 1.3588) will pave the way for a test on 1.4939 resistance level.