ECB To Review Greek ELA, Pressure On EUR

Forex News and Events

EUR remains under pressure as Greek reform negotiations look to have stalled, and despite decent PMI manufacturing reads across Europe. The most recent news flow from Brussels and Athens indicate no agreement will be reached before Easter. This does not look well for a debt repayments starting April 9th to the IMF. Worryingly, ECB policy makers will examine their current Emergence Liquidity Assistance (ELA) strategy to Greece. Greek banks have seen massive deposit outflows for a sixth month and depends on lending from the Greek central bank to say liquid. Recently the ECB raised the amount the Greek central banks can lend to domestic banks to €71.1 billion. The funds from the ELA is keeping Greece afloat (after the ECB suspended banks use of junk rated Greek bonds as collateral). The ECBs governing council will be holding their weekly review and will study if further lending to risky Greek banks (which are channeling funds to the Greek government) is advisable. The ECB balance sheet is now ramping up (€2246bn) with heavy TLTRO loans to banks and ECB buying of government bonds. We remain significantly negative on the Euro and EUR/USD. Yesterday’s EUR/USD close below the 21d MA at 1.0780 indicates a bearish move towards 1.0458. EUR/GBP, safely below 65d MA indicates sustained bearish momentum, targeting 0.7000 cyclical lows. Elsewhere, it seems ECB President semi-covert strategy of debasing the EUR to stimulate growth looks to be having a positive effect. Euro area PMI manufacturing came in at 52.2 verse 51.9 exp/prior while German PMI manufacturing rose slightly to 52.8 verse 52.4 exp/prior. Clearly Europe is exhibiting signs of “green shots”. The good economic numbers will support European stocks after a strong March. In the US session, the heavy US data starts today. ADP is anticipated to show that 225k jobs were added in March following February 212k read.

Don’t Count Switzerland Growth Out Just yet….

Swiss PMI manufacturing surprised to the upside coming in at 47.9 verse 47.5 exp and 47.3 prior read. There were solid increases in output at 49.8 from 47.3 and quantity of purchases at 46.8 from 41.1. In addition, purchase price also increased to 26.3 from 12.9. Interestingly, while Swiss corporates names were crying, “end of days” and “economic tsunami” post SNB decision to remove the EURCHF floor, todays PMI and yesterday’s Swiss Kof leading indicators are telling a different story. The KoF indicator unexpectedly rose slightly to 90.8 verse a broadly expected decline to 88.0 as solid domestic spending (consumption) offset fall in exports due to the strong CHF. The index is designed to predict the direction of the Swiss economy over the next 6 months. While the Swiss economy is clearly feeling the effect of the SNB decisions to end the cap, as sentiment in construction and financial sector deteriorated further, the potential the downside is not as large as originally prophesized. In fact according to the Kof institute Switzerland is now expected to see growth in 2015. Due to QE and unresolved Greek crisis and expectations for a modest recovery in Switzerland, we are bearish on the EUR/CHF. EUR/CHF is now testing the lows not seen since February at 1.04198 low. Break of downside should trigger an extension of bearish momentum to 1.0200. Policy pergence should drive USD/CHF higher. USD/CHF continues to bounce above 0.9695 hourly resistance indicating improvement in short term buying interest. Traders will be focused on the next resistance area located at 0.9984.

USD/CHF Chart

Today’s Key Issues

The Risk Today

EUR/USD has broken the support at 1.0768 (see also the 50% retracement), confirming increasing selling pressures. Another hourly support lies at 1.0613. An hourly resistance can be found at 1.0949, while a key resistance area stands between 1.1043 and 1.1114 (see also the declining trendline). In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, any strength is likely to be temporary in nature. Strong resistances stand at 1.1114 (05/03/2015 low) and 1.1534 (03/02/2015 high). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).

GBP/USD has weakened after the successful test of the resistance at 1.4990. A further short-term decline towards the support at 1.4635 is favoured. An hourly support now lies at 1.4753, whereas an hourly resistance stands at 1.4922. In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low). Another strong support stands at 1.3503 (23/01/2009 low). A key resistance can be found at 1.5552 (26/02/2015 high).

USD/JPY has shown some signs of weakness near the resistance implied by the declining trendline. An hourly resistance now stands at 120.37. Hourly supports can be found at 119.42 (intraday low) and 118.93 (27/03/2015 low). Another resistance lies at 121.20. A long-term bullish bias is favoured as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 124.14 (22/06/2007 high) is favoured. A key support can be found at 118.18 (16/02/2015 low), whereas a key resistance stands at 121.85 (see also the long-term declining channel).

USD/CHF needs to break the resistance at 0.9812 (see also the 50% retracement) to signal a significant improvement in the short-term buying interest. Hourly supports can be found at 0.9656 (31/03/2015 low) and 0.9558 (27/03/2015 low). Another resistance stands at 0.9984. In the longer-term, the bullish momentum in USD/CHF has resumed after the decline linked to the removal of the EUR/CHF floor. A test of the strong resistance at 1.0240 is likely. A key support can be found at 0.9450 (26/02/2015 low, see also the 200-day moving average).

Resistance and Support

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