Euro Finds Additional Bids With Greece Deal on the Horizon

DailyFX   |  February 8 2012 1:29 EST

Expectations that a deal will finally be reached on Greece have infused a fresh wave of confidence and the Euro could be poised for additional gains…

• Greece deal looks like it really could happen
• WSJ reports that ECB could make concessions on Greek debt
• Yen extends recent declines while Franc also shows renewed weakness
• Bank of England kicks off two day policy meeting; expected to increase QE

A fresh wave of optimism has been injected into the Euro, with the single currency outperforming in recent trade on the back of legitimate expectations that a Greece deal is finally near. Greek party officials are slated to meet later today to facilitate the agreement of the bailout, which one party leader says should not end in humiliation for the country. Also seen propping the Euro is a report from the WSJ which says that the ECB might consider making concessions on Greek debt.

The break in EUR/USD above the recent consolidation highs at 1.3235 ends a multi-session bout of consolidation which should now open additional upside towards the 100-Day SMA in the mid 1.3300’s. Elsewhere, the Yen is also on the move, with the currency weakening across the board and diminishing the possibilities for a retest of its record highs against the US Dollar from October. The EUR/CHF cross is also looking like it could be basing out, with the market moving further away from its 1.2000 SNB floor after SNB Jordan reaffirmed the central bank’s strong commitment to defend the level.

Moving on, the Bank of England kicks off its two day policy meeting, and while rates are expected to remain on hold tomorrow, there is a general consensus that the BOE will announce the expansion of its asset purchase target by GBP50B to GBP325B total. The economic calendar for Wednesday is fairly light and we would recommend keeping a close eye on Greece developments and global equity prices which in our opinion are at risk for a significant bout of profit taking on overbought technical readings.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The latest multi-session consolidation has been broken, with the pair clearing resistance at 1.3235 and now opening the door for a test of the next key level in the form of the 100-Day SMA at 1.3335. Given the recent consolidation range of approximately 200 points (1.3025-1.3235), we will leave the door open for a move towards the 1.3450 area before the market eventually looks to stall out and carve a more meaningful lower top ahead of broader underlying bear trend resumption. A break back below 1.3025 is now required to officially alleviate immediate topside pressures.

USD/JPY:The market could once again be looking to carve an interim base after setbacks stalled shy of the record lows from October by 75.55. A bullish reversal day from last Friday has shown some decent follow through and a daily close back above 77.00 will do a good job of alleviating immediate downside pressures and reintroducing longer-term basing prospects. Inability to establish back above 77.00 on Wednesday will however keep the focus on the downside and on a retest of the record lows.

GBP/USD: The latest break back above 1.5800 now compromises a multi-week consolidation, with the pair now looking to push towards next key resistance by 1.6000. However, despite the upside move, we see any additional gains from here as limited and would look for a topside failure somewhere around 1.6000 in favor of a bearish resumption. Daily studies confirm and are starting to look stretched as well. A close back under 1.5730 will also suggest that the market has peaked out for now in favor of bearish resumption.

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. However, with the latest consolidative declines now finally testing the 100-Day SMA, any additional downside should be limited in favor of a fresh upside extension. Ultimately, only a daily close back below 0.9000 would give reason for concern. Alternatively, a close back above 0.9250 would alleviate immediate downside pressures and reaffirm outlook.

--- Written by Joel Kruger, Technical Currency Strategist

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