FX Markets Choppy As Sovereign Debt Concerns Counter Optimism For US Data

Daily Forex Fundamentals | Written by AC-Markets | Jan 06 10 10:51 GMT |

News and Events: Coming a day after yesterday's UK debt worries, European markets were given a fresh reminder of the fragile state of Greece's predicament as Reuters reported comments from ECB's Stark that the rest of the EU would not save Greece from its fiscal difficulties. These remarks have quickly been followed up by counter comments from Greece's Finance Minister Papaconstantinou; who strenuously denied that Greece needed a bailout, and added that Stark did not need to make the bailout comments at all. Despite this timely exercise in damage limitation from the Greek camp, it seems that lingering doubts about European sovereign debt never seem to settle for long before fresh headlines shake up the delicate balance of risk sentiment. Consequently, the USD (which tends to benefit from debt crisis headlines) and FX markets as a whole are left trading in a relatively choppy fashion as improving global data clashes with waves of risk aversion on unpredictable headlines. Credit ratings agencies are certainly being kept busy with ongoing issues in Greece and Dubai, the UK and Japan also toeing a fine line, and most recent news that Iceland has been downgraded to junk status by Fitch. The latest in development in the Icelandic saga is the refusal of President Olafur Grimsson to sign a bill that would obligate Iceland to repay UK and Dutch governments for depositor claims following the collapse of Landsbanki. The bill will now be put to a referendum, but with widespread opposition amongst the population, there is considerable risk that future IMF help is hampered by this vote, and indeed the likelihood of Iceland joining the EU seems far less probable than before. Against this backdrop of economic uncertainty, FX traders are also trying to reconcile analyst optimism for upcoming US data. Consensus for this Friday's Non-Farm Payrolls is for no change – which, if realized, would constitute the first non-negative change in payrolls since December 2007. Tonight's FOMC Minutes should give some further insight into whether market optimism is echoed by the voting members of the Fed, but at this juncture we feel it is unlikely the Fed will say anything drastically different from last meeting's minutes Today Key Issues: 10:00 EUR PPI, % m/m (y/y) Nov exp: 0.2 (-4.5) prev: 0.2 (-6.7) 10:00 EUR Industrial orders, % m/m Oct exp: -1.0 prev: 1.7 13:15 USD ADP private payrolls, chg, thous Dec exp: -75 prev: -169 15:00 USD ISM non-manufacturing index Dec exp: 50.5 prev: 48.7 19:00 USD FOMC minutes released 16-Dec The Risk Today: EurUsd Choppy and directionless trading prevails in EURUSD with the morning's plunge to 1.4284 lows now quickly reversed to put us firmly back in the ranges at 1.4375. Once again we are left eyeing topside resistance ahead of 1.4500, and beyond there the major hurdles at 1.4600 and 1.4685. If we look on the daily chart, there is a flag formation being carved out with downside support currently coming in around 1.4280 (coinciding with today's lows), and if breached we can expect a continuation of the downtrend that has been in play since 4th Dec (break f the 12-minth uptrend). It may be a difficult move lower however with support lying in wait at 1.4244 (200 day moving average), and range lows at 1.4210. GbpUsd Yesterday's bout of GBPUSD weakness breached the lower end of the prior 1.6050-1.6250 range, and the break below 1.6000 now leaves the pair vulnerable to a revisit of 1.5833 (Dec 30 lows). If we re-enter the range, the 200-day movig average at 1.6100 forms first area of good supply, and beyond there expect prior resistance levels to still be in play: 1.6248 (Dec 18 highs), followed by 1.6323 (100 day moving average), and above there the 1.6400 psychological barrier. UsdJpy After a quick visit to 91.26 lows yesterday (just above 91.10 support), USDJPY has been well bid back above the 92.00 level, and looks like we will remain rangebound between 93.22 (22 Dec high) and the 91.10 lows. A break below 91.10 would indicate a resumption of the larger downtrend that has been in play since mid 2007, but for now, look for bids ahead of 91.10, and plenty of offers around 93.00-20 zone to contain the pair. Only a daily close above the 93 handle would suggest a further move higher. UsdChf Range-trading prevails in USDCHF between 1.0280 and 1.0425, but the break above the 100-day moving average (1.0301 currently) does seem to favour further USD strength from here. Next levels to watch outside the range are 1.0508 key high and beyond there the 1.0700 major resistance (38.2% correction of the move from 1.1970 down to 0.9918). Near term support stands at 1.0320 ahead of 1.0220. EURUSD GBPUSD USDJPY USDCHF 1.4580 1.6400 95.00 1.0700 1.4500 1.6335 93.35 1.0625 1.4484 1.6236 93.20 1.0425 1.4375 1.6015 92.35 1.0335 1.4232 1.5945 91.10 1.0300 1.4210 1.5833 90.00 1.0220 1.4100 1.5710 89.10 1.0175 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.