Euro: Another Issue Avoided As ISDA Rules No Greek Default

By John Kicklighter, Currency Strategist

  • Dollar Takes Advantage of Euro Selling, Generates Little heat Itself
  • Euro: Another Issue Avoided as ISDA Rules No Greek Default
  • British Pound Maintains its Strength as Factory Reading Boosts Growth Outlook
  • Canadian Dollar: What Kind of Market Reaction to Expect from 4Q GDP?
  • Japanese Yen Slides on Risk, Policy Officials Try to Leverage the Trend
  • Gold Retraces Massive Wednesday Loss, Recovery Slow
  • US Oil Hits 10 Month High, Brent Crude Tags Three-and-a-Half Year High

Dollar Takes Advantage of Euro Selling, Generates Little heat Itself

Volatility on the dollar cooled through this past session as both risk trends and Euro crisis speculation tempered their swings. Heading into the final trading hours of the week, we have little in the way of event risk that could be reasonably be expected to generate volatility – much less rouse the necessary fundamental conviction to generate a genuine trend. That said, the greenback is just off of multi-month lows against most of its liquid counterparts – not surprising with the S&P 500 edging to yet another three-and-a-half year high. Yet, the weather can change quickly.

Euro: Another Issue Avoided as ISDA Rules No Greek Default

Yet another possible stumbling block for the euro was passed without incidence. Following the Greek parliamentary votes, the EU votes and the second long-term refinancing operation (LTRO); euro traders moved on to the ISDA’s determination committee ruling. The group in charge of triggering credit default swaps decided there was no credit event on €3.25 billion in contracts with the recent bond swap. This was the expected outcome, but we haven’t permanently left this particular concern behind. When the PSI effort goes through, the 75 percent participation rate will not likely be met and the collective action clauses (CAC) that we have heard so much about will likely be enforced to put holdouts in line. That is far more difficult to argue as a non-event. Furthermore with Greece, we learned this past session that the Greek manufacturing sector suffered a record (for the PMI series) contraction and Eurogroup head Juncker noted a mysterious ‘Plan B’ should the bound swap not go through.

British Pound Maintains its Strength as Factory Reading Boosts Growth Outlook

Austerity and recession. Those are two most prevalent fundamental concerns for the UK (excluding perhaps the threat of a spillover of the Eurozone financial crisis as BoE Governor King likes to remind us on a weekly basis). After Wednesday’s LTRO injection, there was a notable sense of relief that a credit crisis (one of the easily transmutable aspects of financial crises) was upon us. That freed up the market to turn the focus back on the balance between government spending cuts and the economic slowdown. In the round of February factory activity reports, the UK manufacturing sector may have slowed modestly but it was nevertheless the second month of expansion.

Canadian Dollar: What Kind of Market Reaction to Expect from 4Q GDP?

Through all the volatility over the past week, the Canadian dollar has ultimately stood out as the best performer (whether against the safe haven dollar, the collapsing yen or fundamentally erratic euro). This strength traces back to two important aspects of the commodity currency: its role as an investment unit and its relative financial / economic stability. Through its link to the high yield group, swells in risk appetite (which seem to be the underlying trend if we look at the S&P 500) provide the sharp rallies needed to overwhelm otherwise firm levels of resistance. And subsequently, with the lulls, Canada’s separation from the Euro-centric financial issues and steady growth bearing regulates its declines. How strong is the economy though? We will be offered a firm answer to that question in the upcoming session. The 4Q GDP reading is scheduled for release at 13:30 GMT. Considering we have monthly growth figures, expected surprise quotient is low. But we have good conditions for surprise.

Japanese Yen Slides on Risk, Policy Officials Try to Leverage the Trend

Japanese officials have no doubt felt a significant sense of relief these past weeks as their currency has dropped 7.4 percent against the benchmark dollar and 13.2 percent versus the euro. And, though we are still a very long way from peaks of 125 and 170 (respectively) set not so long ago; the first steps in a larger, fundamental reversal seem to be in place. It should be asked, however, whether this is a move that is based more heavily on underlying financial imbalances or the persistent efforts of monetary policy officials. Finance Minister Azumi and BoJ Governor Shirakawa perhaps believe it is their doing. This morning Azumi stated that Japan was considering further investment into EFSF bonds (a EURJPY booster), while Shirakawa said he would pursue easing until the central bank’s price target was in sight. That said, market forces historically win out over manipulation. The fundamentals are there for depreciation, but watch out for waves of carry unwinding.

Gold Retraces Massive Wednesday Loss, Recovery Slow

Gold’s plunge Thursday was epic. The 4.9 percent collapse was the largest single-day plunge suffered by the safe haven asset since December 2008 (back when the capital markets were churning on the global financial crisis). After setting its floor, the previous metal slowly started to recover lost ground through the new trading session. Technical traders would note that the rebound pulled up to the 38.2 percent Fib retracement of the initial decline and bounce below the 1,725 threshold through the trading day. While this is an interesting level to return to, what is perhaps more significant in this gear change is that it was a reserved reversal. If the initial tumble was on an overblown reaction to the absence of QE3 hints from Bernanke, the rebound would have larger. This seems to simply take advantage of the natural pullback in the dollar.

US Oil Hits 10 Month High, Brent Crude Tags Three-and-a-Half Year High

In a day that was otherwise lacking for volatility, oil was a clear standout . The commodity was slowly recovering from the past week’s stumble (a move that arguably broke the steady, February bull trend), when it was delivered a strong fundamental accelerant: rumor and speculation. News hit the wires in the afternoon hours of the New York session that an unknown pipeline in the Eastern Province of Saudi Arabia. This is a particularly sensitive time for any meaningful supply disruptions as the West pursues sanctions against the world’s fifth largest oil producer: Iran. This is a particularly interesting event because there was no immediate confirmation of the stories authenticity. Subsequently, it took time for the market to build up a head of steam, but surge it did. US crude (WTI) extended its run to a high of 110.55 that was last seen back in May, while its UK cousin (Brent) dramatically extended its rally to a 5.6 percent peak to dramatically overtake last April’s swing high and test prices (128.40) that haven’t been probed since July of 2008. A critical break to new highs however would not ultimately be confirmed as Saudi officials soon after refuted the reports of an explosion. Independent verification one way or the other is still notably absent; and as such, the oil traders are holding off of Thursday session highs – though not far enough make a return difficult.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

N ext 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:00

NZD

ANZ Commodity Price (FEB)

1.2%

Index expected higher on recovery

1:00

CNY

China Non-manufacturing PMI (FEB)

52.9

Services to be helped by easing

7:00

EUR

German Retail Sales (MoM) (JAN)

0.5%

0.1%

German sales showing moderate recovery

7:00

EUR

German Retail Sales (YoY) (JAN)

0.2%

-0.9%

9:30

GBP

Purchasing Manager Index Construction (FEB)

51.3

51.4

UK sector moderate, weaker

10:00

EUR

Euro-Zone Producer Price Index (MoM) (JAN)

0.5%

-0.2%

Eurozone PPI expected to slow, gives more scope for additional easing

10:00

EUR

Euro-Zone Producer Price Index (YoY) (JAN)

3.6%

4.3%

10:00

EUR

Italian Deficit to GDP (2011)

4.0%

4.6%

Yearly Italian data showing some improvements, though focus still on Greece

10:00

EUR

Italian Annual Gross Domestic Product (2011)

0.3%

1.5%

13:30

CAD

Gross Domestic Product (MoM) (DEC)

0.3%

-0.1%

Canadian December output expected to slow, may cap rate expectations

13:30

CAD

Gross Domestic Product (YoY) (DEC)

1.9%

2.0%

13:30

CAD

Quarterly GDP Annualized (DEC)

1.8%

3.5%

USD

ICSC Chain Store Sales (YoY) (FEB)

4.8%

US retail recovery may continue

GMT

Currency

Upcoming Events & Speeches

1:00

USD

Fed's Bullard Speaks on U.S. Economy in Vancouver

4:30

USD

Fed's Williams Speaks in Honolulu

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE EMERGING MARKETS 18 :00 GMT SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

16.5000

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.1813

1.8298

7.9516

7.7618

1.2719

Spot

6.7826

5.7501

5.9324

Support 1

12.6000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\ Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.3096

1.5727

77.65

0.9464

1.0227

1.0620

0.8168

100.92

121.26

Resist. 2

1.3055

1.5689

77.49

0.9434

1.0203

1.0586

0.8142

100.59

120.94

Resist. 1

1.3014

1.5652

77.33

0.9405

1.0179

1.0552

0.8116

100.27

120.61

Spot

1.2931

1.5576

77.01

0.9345

1.0132

1.0484

0.8063

99.62

119.97

Support 1

1.2848

1.5500

76.69

0.9285

1.0085

1.0416

0.8010

98.97

119.32

Support 2

1.2807

1.5463

76.53

0.9256

1.0061

1.0382

0.7984

98.65

119.00

Support 3

1.2766

1.5425

76.37

0.9226

1.0037

1.0348

0.7958

98.32

118.67

v

--- Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To contact John , email jkicklighter@dailyfx.com . Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com .

Additional Content: Money Management Video

Trading the News Video

DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2012/03/02/Euro_Another_Issue_Avoided_as_ISDA_Rules_No_Greek.html