THE TRADER'S JOURNAL

Second Greek Bailout Package Pass Eurogroup

News and Events:

The initial reaction was a one of relief as the much anticipated Greek second bailout package was passed by the Eurogroup finance ministers was announced. However, there was little else in regards to further rally in risk appetite. We do have DJIA futures trading above 13000, which is a solid, bullish signal, but the movement in FX has been less than compelling.

Dow Jones reported that financing on the deal would total 130bn euro and that Debt to GDP would wall to 121% by 2020. In addition, the news wires reported that private creditors would accept a deeper haircut, expected to be over 53%. On the news of the Eurogroup and PSI agreement, EURUSD jumped to 1.3290 while AUDUSD climbed to 1.0755, however there was little follow through in either pair after the initial reaction. Details remain light but the initial worry surrounds our concerns over growth projections. This crisis has always been about competitiveness and the ability to (or lack thereof) generate stable growth rates. These are long term structural issues that will not be solved with only cash injections and decreasing debt obligations. There is chatter that using a model that projects only a slightly deeper recession and, if structural reforms are not carried out, then debt to GDP could easily reach 160% in 2020. Obviously the lack of progress in implementing reforms is a real concern since so far, much has been promised but not much as been executed. As for today markets, will be digesting the Eurogroup Greek bailout agreements and searching for further clarity. The critical barometer will be the Spanish, Italian and Portuguese yield spreads verse Germany. This will give the markets a better idea of how far the agreement has gone in lowering contagion risk. In other news, the RBA minutes came in slightly more dovish than anticipated.

The RBA stated that they saw room for further easing at the February meeting, stating that the inflation outlook gave room to cut, if demand weakens. Compared to the movement from Europe, the reaction to the minutes was muted. AUD OIS has decreased in recent weeks lowering the expectation for a rate cut. Currently there is only 8bp price in for the next meeting and 25bp for the May meeting. Should we get some soft reads in activity, watch for the curves to shift sharply higher. The AUD has also gotten a boost due to China PBoC decision to cut the RRR 50bp over the weekend. The easing of policy in China clearly raised confidence and demand in Australia. The key events for today will be the EcoFin meeting and French bond auction.

Today Key Issues:

• 07:00 CHF Trade balance, bn
• 07:00 EUR ECOFIN meeting
• 12:00 TRY Benchmark repo rate, % 5.75 exp
• 15:00 EUR Flash' consumer confidence, index

The Risk Today:

EurUsd Considering the headlines we would have expected a slightly bigger relief rally but we guess the result was already priced in. EURUSD recovered from last Mondays 1.3176 lows to a high of 1.3292 today. Having negated resistance at 1.3282 we expected the move to extend to 1.3320 in the near term. If the bulls do rally again from here, we expect some supply to materialize at 1.3320 (13th Dec, 27th Jan, 31st Jan & 1st Feb highs). Then above there we have clear skies until next resistance at 1.3461 (8th Dec high). Next supports in the cross hairs will be 1.3190/10 (intraday low), 1.3099 (16th Feb low), than should bears attempt to close the gap 1.2930 (25th Jan low) will come into play. After that 1.2875 (23nd Jan low), 1.2839 (19th Jan low), and 1.2711 (17th Jan US session low) should provide support.

GbpUsd GBPUSD has charged higher at the start of this week, negating its current downtrend channel and shifting our bias to mildly bullish. However, while the bullish move has been aggressive, the key question is its sustainability, as momentum has stalled. The cable remains well short of the 1-month uptrend channel territory and unable to test the 1.5885 resistance and therefore we will only marginally bullish. On the topside there is plenty of resistance cluttering the path to recovery; first resistance is now 1.5878 (double touch on 20th Feb), 1.5885 (9th Feb high), 1.5932 (15th Nov high), and 1.6000 psychological level. Should the bears resume their sell-off in the coming sessions, watch for supports to come into play at 1.5770 ((14th Feb high), 1.5644 (27th Jan low), 1.5533 (24th Jan low), and 1.5517 (23rd Jan low).

UsdJpy USDJPY has finally managed to rally through the stubborn 78.30 & 78.67 resistance levels and finally taking out psychological resistance at 79.00; meaning that the recent rally has not been a fluke and the bulls remain in firm command of the pair in the coming sessions. On the hourly chart we have spotted a bullish pennant, which suggests a continuation pattern of roughly the size of the flagpole. Should the pattern get triggered our target would be around 82.00. Above us resistance is noted at 79.80/90 (Bullish Pennant & 20th Feb high), which would trigger an extension to 80.24 (4th Aug high), and 81.48 (8th Jul high). We stand ready for a short term correction as some indicators, such as RSI, stand noticeable in overbought territory. On the downside, technical levels below are largely unchanged; first minor support is 79.00 (resistance turned support), 78.68 (14th July 11 high), 77.36 (13th Feb low), then 76.50 (7th Feb low), 76.04 (1st Feb low), 75.54 (record low seen on 31st Oct), 75.00 (major psychological level).

UsdChf USDCHF slumped sharply to a low of 0.9085 overnight on the European news, and we still feel that the downside is vulnerable due to the ease which support has broken over the past few days. With the bears fully in control, watch for strong support still at 0.9085/89 (intraday low), then 0.9066 (30th Nov low), 0.9000 (psychological support), 0.8953 (11th Nov low), 0.8922 (9th Nov low), and 0.8761 (3rd Nov low). Any subsequent rallies are likely to meet sellers back up through at 0.9149 (downtrend channel top), 0.9176 (17th Feb high) 0.9299 (16th Feb high), 0.9340 (25th Jan high), 0.9381 (23rd Jan high), 0.9413 (19th Jan high), and 0.9497 (18th Jan high).

ACM FOREX

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