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.

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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

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

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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