Greek impasse inspires haven demand

• USD broadly firmer as sentiment deteriorates further as Greek officials struggle to form a unity government. The political impasse is raising speculation of a potential Greek exit from the euro zone which is weighing on risk. Elsewhere, China announced a cut its reserve requirement ratio (RRR) by 50bps to 20% which did little to support risk as the move was seen as a reactive measure to the recent stream of weak data. Global equities and UST yields are broadly lower as traders continue to shift out of risky assets in search of safety and the dollar appears to be the main beneficiary. The dollar index remains firmly above the 80.00 level – currently around 80.50 and commodities continue to decline. As there is no economic data of note due out of the U.S. today, markets are likely to remain focused on headlines coming out of Greece.

• EUR under pressure against most of the majors except for the Scandies as political concerns mount and talk of a Greek exit escalates. President Papoulias failed to create a unity government in a first round of talks yesterday and talks are scheduled to resume later today. On the data front, Euro zone industrial production unexpectedly declined in March with a m/m reading of -0.3% (cons. +0.4%) while the yearly figures show a steeper than anticipated fall of -2.2% (cons. -1.4%). The data comes ahead of this week’s Q1 GDP figures which are largely expected to confirm a Euro zone recession. EUR/USD fell to new lows which have not been seen since mid-January – the pair is currently around 1.2850 and a retest of the 2012 lows (and head & shoulders objective) appears to be increasingly likely.

• CAD is softer against the JPY and USD on the back of broader market moves, but mostly firmer against the rest of the G10 currencies after another strong Canadian employment report which was released on Friday. The change in employment in April beat expectations of +10.0k with a +58.2k print from the prior +82.3k gain in March. The Loonie is outperforming the commodity currencies and USD/CAD is approaching key resistance around the 200-day SMA and horizontal level which converge around the 1.0050/60 area. In related markets, crude oil is currently lower by about -1.99% at time of writing. There is no economic data due out of Canada today.

• AUD received little support after China announced a RRR cut. The Aussie bounced initially following the new but saw no follow through. AUD/USD fell below parity for the first time this year and the pair is currently trading around 0.9970. Australian home loans in March grew slightly by +0.3% (prior -2.5%) and RBA Deputy Governor Lowe spoke and said that housing fundamentals and the mining sector are strong, unemployment remains lows, and output is still expanding. The Aussie is weaker against most of the G10 currencies as it is trading as a high beta currency and sensitive to the overall decline in risk and commodities.

• JPY is outperforming on continued haven demand and lower UST yields. The yen is strongest against the Scandies (NOK, SEK) and is slightly firmer against the buck. USD/JPY is currently testing the 100-day simple moving average (SMA) which is around 79.70/75 and has acted as support on recent tests. The pair remains within a bearish medium term channel with resistance around the 21-day SMA and weekly cloud top that converge around 80.45. A convincing break below the 100-day SMA may see towards the 200-day next which is currently around 78.40.

Source: Forex.com

14.05.2012