Euro: The Greek Swap Is A Done Deal, Is It Time To Buy Euros?

By John Kicklighter, Currency Strategist
  • Dollar Faces Swell in Risk Appetite after Greek Bond Swap, NFPs
  • Euro: The Greek Swap is a Done Deal, Is It Time to Buy Euros?
  • British Pound May Find Itself at a Disadvantage After the ECB’s Hawkish Turn
  • Canadian Dollar Advances on BoC Outlook, Can Employment Data Keep it Going?
  • Japanese Yen: Finance Ministers Says Asset Purchases Work, Expects More
  • Swiss Franc: Will the SNB Finally Find Relief in the Euro Zone’s Steps Towards Stability?
  • Gold Puts In for its First Back-to-Back Advance in Two Weeks as the Dollar Falls, Stimulus Accepted

Dollar Faces Swell in Risk Appetite after Greek Bond Swap, NFPs

The anti-dollar move that begin Wednesday was extended through this past trading session. With the cumulative rally in risk appetite trends and rebound for European currencies, the greenback would suffer its biggest one-day loss in exactly a month. However, a one-day move does not make a trend. The dollar currently finds itself retracing gains forged over the past few weeks. To reestablish the general bear trend that swept the currency down since the beginning of the year, we need serious fundamental firepower. It just so happens that we have event risk to leverage the market’s two most influential themes – and subsequently, the dollar’s most pressing catalysts. On deck, we have another critical milestone in driving forward the Greek rescue and the ever, headline-worthy nonfarm payrolls (NFPs).

Where the dollar is the world’s most liquid currency, EURUSD is the most liquid pair. As such, when the euro is under severe duress or strong demand, the greenback often takes the opposite move. That’s what makes the current market so exciting. We have come up to yet another ‘make or break’ deadline for the Euro Zone financial situation, and officials’ clumsy means of framing the situation in such a harsh light tends to leverage the currency market’s interest. In the current round of the ongoing rescue, the best possible outcome is essential the bare minimum required to keep this the ship afloat. And, preventing disaster isn’t the same thing as jump-starting true growth. Beyond countering the euro’s moves, the dollar will find another strong tie-in to risk trends with the February NFPs . Here too, the long-term trend benefits little from even an exceptional deviation from consensus for just one month, but the short-term influence is there. It will curb activity before and struggle after.

Euro: The Greek Swap is a Done Deal, Is It Time to Buy Euros?

The numbers are in, and the outcome of the Greek PSI (private sector involvement) bond swap is clearly the positive outcome of the binary scenario tree. According to officials, there was an 85.8 percent participation rate on €172 billion. That easily clears the 75 percent minimum Greece was looking for. So, is that reason enough for the euro to rally? Leading up to the event itself, it was clear what the few conclusions to this event would be; and it was heavily expected that effort would pass in some form. That being said, market participants were more or less expecting such an outcome and would therefore price it in ahead of time. Follow through on developments like this generally comes from a clearing of the air – whereby future steps that had a wide array of possible outcomes suddenly consolidates to just a few possibilities. That isn’t provided here. The upcoming EU minister meeting will most likely release the remaining €71.5 billion euro rescue money and then we will have to look further out. One indisputable boon for diehard bulls though is the ECB’s downplaying financial tension and start warning on inflation.

British Pound May Find Itself at a Disadvantage After the ECB’s Hawkish Turn

As is the norm when there is no change to interest rates, the Bank of England remained mum on its policy assessment and expectations for economic activity after its most recent meeting. However, in the absence of guidance, speculators will draw comparisons – this is a relative market after all. Where the BoE continues on its slow path of bolstering its stimulus program, the ECB has just voiced its concern about inflation and Governor Draghi has said the financial environment has “improved enormously”. That is a quick hawkish turn – regardless of qualifiers of downside risks. So, if the ECB seems ready to turn an about face under these circumstances, the BoE doesn’t look good with the UK’s inflation.

Canadian Dollar Advances on BoC Outlook, Can Employment Data Keep it Going?

The other central bank surprise for the week was the Bank of Canada’s commentary. A consistently dovish outlook has become the norm for these events and the markets have acclimated without much active engagement on the warnings. So, in this past statement, Governor Carney’s suggestion that the economic outlook had improved and inflation will be somewhat higher in the medium-term, we see an uncharacteristic allowance for hawkishness. As long as underlying risk trends keep a steady or bullish heading, events like this will help an investment, Canadian currency. We have a great chance for leveraging an unusual deviation for the loonie away from general trends should jobs figures impress.

Japanese Yen: Finance Ministers Says Asset Purchases Work, Expects More

You had to expect that policy officials would take at least some credit for the yen’s titanic tumble over the past month. This both offers legitimacy to what they have done so far and creates uneasiness with speculators to fight the trend going forward. Finance Minister Azumi remarked that the Bank of Japan’s increased asset purchases clearly helped equities and the yen. More importantly, he also expected the central bank to continue on its path of easing. There is growing speculation that the policy group will move as early as its next meeting. That would be aggressive, but it could capitalize on existing momentum – a good plan considering risk pullbacks are a constant threat.

Swiss Franc: Will the SNB Finally Find Relief in the Euro Zone’s Steps Towards Stability?

With Greece’s bond swap going through and the country likely to receive the second half of its second bailout package, near-term risk has been lifted off the euro’s shoulders. Considering the Swiss franc’s primary role nowadays has been a safe haven for regional capital, a simple assessment would suggest that this relief would lead to a significant advance from the contentious 1.2000-floor against the euro. Yet, those expectations have yet to pan out. EURCHF is virtually unmoved. This has been the case under both scenarios where financial stability seems to have deteriorated sharply and improved significantly. We have an SNB rate decision next week. Will they be forced to act?

Gold Puts In for its First Back-to-Back Advance in Two Weeks as the Dollar Falls, Stimulus Accepted

A second advance for gold marks the first back-to-back climb for the precious metal in two weeks. In the lead up to the Greek bond swap, we would see risk rise and thereby the dollar slide. Given gold’s position as the primary non-currency alternative to the greenback, the boost was welcome. From here, we have the anti-dollar consideration still in place; but we could also see the precious metal go back to work as a preferred alternative to all fiat assets (those assets whose value comes from the guarantees of governments). Post bond swap, we come back to the stimulus regimes and austerity-growth imbalances that have long plagued the global economy.

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ECONOMIC DATA

N ext 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:30

CNY

PPI (YoY) (FEB)

0.0%

0.7%

Price indices expected both to drop, may mean additional easing or fine tuning of economic plan

1:30

CNY

CPI (YoY) (FEB)

3.4%

4.5%

5:30

CNY

Industrial Production YTD YoY (FEB)

12.3%

13.9%

Industrial production data both expected to soften, may suggest additional reforms

5:30

CNY

Industrial Production (YoY) (FEB)

12.4%

12.8%

5:30

CNY

Fixed Assets Inv Excl. Rural YTD YoY (FEB)

19.5%

23.8%

5:30

CNY

Retail Sales YTD YoY (FEB)

16.5%

17.1%

Domestic consumer seen to save moderately more

5:30

CNY

Retail Sales (YoY) (FEB)

17.3%

18.1%

8:00

EUR

German Current Account (euros) (JAN)

10.4B

19.3B

German trade expected to show moderate pivot

8:00

EUR

German Trade Balance (euros) (JAN)

13.0B

12.9B

9:30

GBP

Industrial Production (MoM) (JAN)

0.3%

0.5%

Industrials and manufacturing seeing some dropoff, though additional easing in a very short time is unlikely

9:30

GBP

Industrial Production (YoY) (JAN)

-3.1%

-3.3%

9:30

GBP

PPI Input n.s.a. (YoY) (FEB)

7.1%

7.0%

Producer prices expected to show slightly higher data, may bring back concerns of inflation into the picture

9:30

GBP

PPI Output n.s.a. (YoY) (FEB)

3.9%

4.1%

9:30

GBP

PPI Output Core n.s.a. (YoY) (FEB)

2.5%

2.4%

9:30

GBP

Visible Trade Balance (Pounds) (JAN)

-£7111

British trade deficit seen to continue, may influence fiscal policies

9:30

GBP

Trade Balance Non EU (Pounds) (JAN)

-£3748

9:30

GBP

Total Trade Balance (Pounds) (JAN)

-£1109

12:00

CAD

Net Change in Employment (FEB)

14.5K

2.3K

Canadian labor markets expected to improve, may give more support for a rate hike in the near future

12:00

CAD

Full Time Employment Change (FEB)

-3.6

12:00

CAD

Part Time Employment Change (FEB)

5.9

12:00

CAD

Unemployment Rate (FEB)

7.6%

7.6%

13:30

CAD

International Merchandise Trade (CAD) (JAN)

1.95B

2.69B

Canadian trade expected fall

13:30

USD

Trade Balance (JAN)

-$49.0B

-$48.8B

US deficit still increasing

13:30

USD

Change in Non-farm Payrolls (FEB)

210K

243K

US labor market expected to grow slower than previous, will look to fiscal policies now as Fed indicates extent of monetary easing almost reached

13:30

USD

Change in Private Payrolls (FEB)

220K

257K

13:30

USD

Unemployment Rate (FEB)

8.3%

8.3%

13:30

USD

Average Hourly Earnings All Employees (YoY) (FEB)

2.0%

1.90%

13:30

USD

Average Weekly Hours All Employees (FEB)

34.5

34.5

13:30

USD

Change in Household Employment (FEB)

847

13:30

USD

Underemployment Rate (U6) (FEB)

15.1%

15:00

GBP

NIESR Gross Domestic Product Estimate (FEB)

-0.2%

UK GDP estimates weaker

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

12.6860

1.7762

7.4915

7.7575

1.2519

Spot

6.6992

5.6041

5.5937

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

1.3415

1.5962

82.68

0.9191

0.9981

1.0773

0.8366

110.02

131.08

Resist. 2

1.3378

1.5928

82.46

0.9165

0.9960

1.0740

0.8339

109.64

130.67

Resist. 1

1.3341

1.5894

82.24

0.9139

0.9939

1.0707

0.8313

109.26

130.27

Spot

1.3266

1.5827

81.80

0.9087

0.9897

1.0640

0.8259

108.51

129.46

Support 1

1.3191

1.5760

81.36

0.9035

0.9855

1.0573

0.8205

107.76

128.65

Support 2

1.3154

1.5726

81.14

0.9009

0.9834

1.0540

0.8179

107.38

128.25

Support 3

1.3117

1.5692

80.92

0.8983

0.9813

1.0507

0.8152

107.00

127.85

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

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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2012/03/09/Euro_The_Greek_Swap_is_a_Done_Deal_Is_It_Time_to_Buy_Euros.html