Euro Still Very Much Exposed to Greek Contagion Threats | Learn Forex | GoLearnForex.com

Any rebound in the currency markets and investor sentiment overall over the past few sessions is certainly questionable and could very well just be some light consolidation ahead of the next major wave of market uncertainty and risk selling. The debt crisis in Greece remains at the forefront of investor minds with the potential for contagion still very much a reality. Germany has lightened up a bit on its stance towards Greece and the EU FinMins have agreed over the weekend that additional funding for the beleaguered country will include a rollover of existing debt by private sources. However, there will be no final decisions made on the finality of a funding strategy towards Greece until July with much of the fate contingent on Greece’s parliament adopting the necessary austerity measures. There is now a vote of confidence for the Greek PM which is going on and the results are not expected until Tuesday. Anti-austerity protests continue escalate and while all of this uncertainty abounds, currencies continue to remain at risk for additional pullbacks.

Meanwhile, also weighing on sentiment, particularly toward commodity currencies, was the cutting of Chinese growth forecasts for 2011, 2012 and 2013 by Credit Suisse over-night citing “persistent inflation” as the primary cause. Credit Suisse made particular note of China’s banks and their exposure to a ‘hard landing’ scenario and downgraded the entire banking sector to underweight. Tremors about Chinese growth could rock the market throughout the rest of the day and we continue to see China facing a double-edged inflationary sword. Whereby rampant inflation will seriously impair growth prospects and could cause nationwide frustration as buying power is diminished. On the other side, draconian measures by Beijing to tamp down inflationary pressures could drain too much momentum from Chinese growth have very dire prospects. In any event we are very bearish on the Chinese economy at the current juncture and see significant risks for a ‘crash and burn’ scenario.

Looking ahead, German producer prices is the only release to note in Europe this morning at 06:00GMT and with an empty North American calendar traders are likely to focus on some of the broader issues to direct trade. US futures are tracking lower, commodities are also selling off led by oil which has dumped more than 1.5% into the European open.

ECONOMIC CALENDER

TECHNICAL OUTLOOK

EUR/USD: Setbacks have accelerated over the past few days and the market looks poised for a deeper drop back towards the recent trend lows from Mid-May by 1.3970. From here, any intraday rallies are expected to be well capped ahead of 1.4350, with a break back below 1.3970 to likely open a fresh downside extension exposing a move towards 1.3500 further down.

USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support in the 80.00 area and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported around 80.00 with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming weeks and a break and close back above 81.00 will help to confirm.

GBP/USD: Rallies have been very well capped in the 1.6500’s with the market looking like it wants to carve out a fresh lower top by 1.6550 ahead of the next downside extension below 1.6060. From here, look for intraday rallies to be well capped ahead of 1.6300, with a break back below 1.6060 to confirm bearish bias and accelerate declines towards next major support by 1.5750.

USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows by 0.8325, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. The recent close back above 0.8470 officially encourage bullish reversal prospects and opens the door for a fresh recovery extension back towards 0.9000. Intraday setbacks should be well supported ahead of 0.8400, while only back below 0.8300 negates.

Written by Joel Kruger, Technical Currency Strategist

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