Talk of a Greek exit from the EMU may have gone overboard. The new Greek Prime Minister Lucas Papademos has promised to carry out all of Greece’s obligations to receive European bailout funds. This may help to restore fragile investor confidence in the EUR.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  |
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| Weekly Trend | |
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| Resistance | 1.4290 | 1.6615 | 79.30 | 0.9450 | 1.1080 | 0.8885 |
| 1.4105 | 1.6450 | 77.85 | 0.9310 | 1.0750 | 0.8830 | |
| 1.3860 | 1.6140 | 77.50 | 0.9080 | 1.0450 | 0.8650 | |
| Support | 1.3650 | 1.5850 | 76.95 | 0.8950 | 1.0250 | 0.8560 |
| 1.3480 | 1.5680 | 76.10 | 0.8760 | 1.0050 | 0.8485 | |
| 1.3145 | 1.5270 | 75.63 | 0.8570 | 0.9650 | 0.8355 |
Economic News
EUR – Greek Exit from EMU Not Likely
The present coalition in Greece has confirmed its intention to implement the most recent EUR 130 Bn European bailout for the country. This will be done prior to new elections. This is the type of promise investors need to help add stability to the EUR.
From all the market events that have occurred over the past week, two important developments have occurred; Greece could default on its bonds and the indebted country could theoretically leave the EMU.
However, with the new leadership in Athens the chances of these events occurring have decreased significantly. Therefore, the EUR could gain based on the improved political scene in Greece. Key resistance for the EUR/USD is found at 1.3860 and a break here could spur gains towards its 200-day moving average at 1.4105.
GBP – Corporate Inflation Slips but Headline Inflation Still Remains High
On Friday the UK reported lower than forecasted PPI which fell by -0.8%. Consensus estimates were for no change from the previous month. Meanwhile headline inflation continues to run at 5.2%, well above the BOE’s target.
This week will have important data releases for sterling. On Tuesday headline inflation will be released and is expected to drop slightly to 5.1%. Thursday will bring the anticipated BOE quarterly Inflation Report that often is accompanied by high volatility in the GBP/USD. Cable has been consolidating into what may be a bullish flag pattern on the daily chart. Resistance is at 1.6105.
CHF – SNB Continues to Campaign for a Weak CHF
The SNB’s campaign of jawboning against CHF strength has continued. The Swiss Economy Minister commented that the currency continues to be massively overvalued, particularly when measured against purchasing power parity.
While the tough talk by SNB is admirable, the CHF will not weaken on its own given the renewed pressure coming from the euro zone. Over the past two weeks the flair up of tensions in both Greece and Italy have made the European situation unstable. With instability comes increased volatility and reduced market sentiment could bring traders to once again use the CHF as a safe haven currency.
JPY – Is the MOF Intervening in the FX Markets?
There have been reports both in the WSJ and in the local Japanese press that the Japanese Ministry of Finance continues to intervene in the forex markets without making a public announcement. The report can’t be confirmed but if this is true then the “covert intervention” does not appear to be having much success as the typical one time interventions that the MOF has previously carried out.
Until Friday the USD/JPY had been stable near the 78 yen level with very little price movement seen in the pair. After the intervention in early August the yen quickly recouped its losses from the one time selling. Previous attempts to flood the spot market with yen did not succeed to weaken the Japanese currency. It is good to see the Japanese are making additional attempts to tackle yen strength. However, any success the Japanese MOF may have could be temporary given the long term downtrend of the USD/JPY.
Technical News
EUR/USD
The resilience of the EUR has led many traders to adopt the strategy of selling the EUR/USD on rallies. The key resistance level is 1.3860 from the early November consolidation pattern. This is also the 50% retracement from the late October to early November downtrend (1.4246-1.3483). Approaches to this key level and the pair may run into selling pressure. Both monthly and weekly stochastics continue to move lower and initial support may be found at 1.3650, followed by last week’s low of 1.3480. A break here could open the door to 1.3145 from the October low. Additional resistance is located at the 200-day moving average at 1.4105.
GBP/USD
Sterling has been met with selling pressure on approaches to its 200-day moving average which comes in at 1.6140. This moving average comes in just above a bull flag pattern located on the daily chart. The support line of the chart pattern falls from the October 26th low and has a potential measured move of 480 pips which makes the August high at 1.6615 a convenient target. Should the pair fail to break out of the consolidation pattern, support may be located at 1.5850 as well as 1.5680.
USD/JPY
Yen strength has reemerged after a period of little movement. The USD/JPY may find support at its 55-day moving average at 76.95 though the one way movement in the price action hints at additional declines in the pair. Additional support may be located at 76.10 from the bottom of the September consolidation with a final destination at least the all-time low at 75.63. Resistance may be found off of the September high of 77.85 while the long term downtrend from the 2007 high is located at 79.30.
USD/CHF
The USD/CHF made a breach but failed to make a significant move above the 0.9080 resistance from the October 20th high. An additional push higher will likely target the October high of 0.9310. Traders should also have their eye on the 20-month moving average which comes in at 0.9450. Initial support is located near 0.8950 followed by the November low of 0.8760.
The Wild Card
A triangle consolidation pattern has formed on the daily chart with the upper leg falling from the October high and the supportive leg rising from the November low. Forex traders should be looking for a break of resistance at 1,268 or a breach of support at 1,225. The S&P 500 may run into resistance at the falling trend line off of the April and July highs at 1,318.
Written by Forexyard.com