Mid-Day Report: Euro Remains Weak as EU Leaders Called for Second Emergency Meeting on Greece …

By: Milla Shaw in Forex Consultant on Jul. 16, 2011

The single currency extended intra-day decline to as low as 1.4015 in part due to rising concerns over eurozone debt crisis when Europe leaders called for another emergency meeting this Thursday to discuss second bailout package for Greece, investors are still not convinced that the EU officials are able to resolve the debt problem in the near future. Both Italian and Spanish 10-year bond yields rallied on risk of debt crisis spreading across Europe from Portugal and Greece to Italy and Spain. Having said that, euro found decent demand from Middle East names above 1.4000 and has recovered in New York morning.

Market will now shift focus on the result of this emergency meeting, called by German Chancellor Angela Merkel on Sunday to be held on Thursday in Brussels to discuss the financial stability of the region and for private investors to make a major contribution to bailing out Greece. German Finance Ministry spokesman Martin Kotthaus said the government is confident that eurozone countries will compromise on a plan to settle debt crisis in Greece at the meeting. At the moment, offers from various parties are tipped from 1.4100 up to 1.4150 and mixture of offers and stops remains at 1.4190-00. On the downside, bids from Middle East names are still noted at 1.4000-10 with stops building up below 1.4000 and further out at 1.3950.

Cable slipped marginally to 1.6062 in London session, however, an article from UK Telegraph limited sterling’s downside. a prediction done by large accounting firm sees the Bank of England to raise interest rates as early as November. Once again there are Middle East names on the downside around 1.6050-60 with stops placed below 1.6050 and further out at 1.6000 whilst offers are still noted from 1.6130 up to 1.6150.

Despite hitting a record low of 0.8034 in swissy earlier in Australian trading on safe-haven flows, the pair continued to recover in Asian and European trading as EUR/CHF rebounded from record low of 1.1365 (option barriers at 1.1450 and 1.1400 were cleared) to 1.1500 as some traders considered this morning’s selloff had been exaggerated due to thin trading condition caused by Japanese holiday. We heard selling interest to reappear around 0.8200 and further out at 0.8250-60 and more traders are expecting the EUR/CHF to head south again to 1.1300 and eventually towards parity.

Negotiations over the U.S. debt ceiling are still underway and is getting closer and closer to the deadline of 2 Auguest, Treasury Secretary Geithner said in an interview on CNBC that default on debt is off the table, despite what people heard from other news sources, people are moving closer together, the only option is for the Congress to raise the country’s $14.3 trillion borrowing limit before the deadline in order to give the U.S. Treasury the authority to borrow more and keep the government having enough money to run. The greenback remained confined within very narrow range against the yen, within 78.95-79.18, heavy offers remain from 79.30 up to 79.60 with stops building up above 79.70 and more above 80.00 whilst on the downside, bids from Japanese names are tipped at 78.90 and more at 78.50-60 with sizeable stops placed below 78.40.

Daily Pivots: (S1) 78.90; (P) 79.08; (R1) 79.28; More.

USD/JPY continues to stay in familiar range above 78.46 temporary and intraday bias remains neutral. Some more sideway trading could be seen but upside is expected to be limited by 4 hours 55 EMA (now at 79.76) and bring fall resumption. Below 78.46 will resume the whole decline from 85.51 and should target 100% projection of 85.51 to 79.56 from 82.22 at 76.27 and then 75.98 low.

In the bigger picture, note that USD/JPY’s rebound from 76.41 low was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 75.98 for a new record low. In any case, break of 85.51 is needed to revive the case that USD/JPY’s down trend has finished. Otherwise, we’ll stay cautiously bearish in the pair.

GMT Ccy Events Actual Consensus Previous Revised

22:45 NZD CPI Q/Q Q2 1.00% 0.80% 0.80% 22:45 NZD CPI Y/Y Q2 5.30% 5.10% 4.50% 23:01 GBP Rightmove House Prices M/M Jul -1.60% 0.60% 12:30 CAD International Securities Transactions (CAD) May 15.4B 7.41B 8.220B 13:00 USD Net Long-term TIC Flows May 23.6B 48.4B 30.6B 14:00 USD NAHB Housing Market Index Jul 15 15 13

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