Small comfort in scale of S&P ratings actions

The reality of Standard and Poor’s’ ratings action against various Eurozone sovereigns on Friday – France and Austria

stripped of their AAA rating each by one notch to AA+, Italy, Spain, Portugal, Cyprus, Malta, Slovakia and Slovenia each cut

by two notches – was less bad than the threats made by S&P back in early December (where all six AAA EZ credits were

put on watch for a downgrade, and France potentially by two notches). Yet any hopes this might engender a ‘buy the fact’

Response were dashed, in part because France remains on negative ratings watch, and in part because of news that the

Discussions in Athens with the IIF over the Greek bond swap plans had once more broken down. Talks are set to resume

On Wednesday, but with the prospect of an involuntary restructuring/default clearly having risen (disclosure: FX Strategy is

on the public side of the Chinese Wall on Greek PSI discussions, to which BNP Paribas is a party). Some observers also

Highlighted S&P comment accompanying its ratings action, noting that in their view, ‘a (Eurozone) reform process based on

A pillar of fiscal austerity alone risks becoming self-defeating’. The subtext is that the ratings agency views the Eurozone

Proceeding apace, on-going fiscal dynamics in a weak/negative growth environment bring high risk of further ratings action.

Greek bond swap worry warts to keep EURUSD under short term pressure

If comparisons with S&Ps 2011 ratings actions against the United States bear any relation to latest EZ ratings events then it is

worth noting that EURUSD rallied both after S&P initially put the US on negative ratings watch, and again after the

Downgrade (see chart). EURUSD has traded south ever since S&Ps December 5 negative ratings watch announcement,

And we suspect will remain subject to further downward pressure in the coming week. This may have less to do with the fact.

 That the EFSF is now threatened with the loss of its AAA status (lukewarm demand for some of its recent bond issues

Indicates that many investors have not taken the AAA status at face value) than worries over the fate of the Greek bond

Swap talks. While we have some sympathy for the view that an involuntary restructuring that includes a CDS trigger could

be viewed positively in so far as it restores credibility to the EZ sovereign CDS market, for real money investors CDS is a

Little-issued instrument. We rather suspect that failure to reach a voluntary PSI deal will be perceived as raising risk of

Greek euro exit this year, and that this will weigh negatively on the euro. This is notwithstanding news Friday that net short

EURUSD speculative positioning on the IMM extended the prior week’s record.

US shut for MLK Day holiday Monday; Key China data due Tuesday

Friday’s better than expected University of Michigan Consumer Sentiment Index (74.0 from 69.9) provided a palliative after

Thursday’s disappointing retail sales release, but BNP economists remain on guard for signs that H2 2011 US growth

Momentum is waning into 2012. Thursday’s Philly Fed survey and housing starts data will both be important in this regard.

But as for Monday, with US markets closed for the MLK Day holiday and very little of note globally on the data or events

Calendar, it will be the on-going reverberation from Friday’s S&P actions and resumption of Greek bond swap talks that

Dominates speculative flows and sentiment. Tuesday morning in Asia will bring latest China production, investment, retail

Sales and, most important, Q4 GDP data. These will be important for commodity currencies in a week that also sees the

BoC’s latest rate decision and MPS and in Australia, labour market data as we head towards the Feb RBA rates decision.

USD-INR JAN 2012 MCX-SX FUTURE :-Last week USD/INR opened at 53.65 & went up on the opening day  to 53.69 to mark the high of the week. It then kept on declining till 51.4650 to register the low of the week & finally closed at 51.7145.For the week we see initial support at 51.45-51.55 & initial resistance at 52.10-52.20.In the event of cross over above 52.20 will head for the 52.80-52.90( low probable case). The breach of support at 51.45 will lead to 50.60-50.70.Our bias is negative & we see more probability of it moving south but we expect a bounce in the initial part of the week.  However global currency market is likely to exhibit heightened volatility& in this dynamic environment, it will be prudent to take this as rough skeleton & we will refine as well as retune final target with the additional data on daily basis. Swing trader should go short on any rally to around  52.10 with the stop of 52.25 or on breach of 51.45 for the  target of 50.60-50.70.Once the trade runs in profit please trail the stop to lock in the profit. Remember trader’s discretion & judgment of price top formation while entering the trade is vital for profitability of trade & this can be done at that moment of time only.

EURO-USD:-Last week EUR/USD opened at 1.2714 & went up to register the high of 1.2878. It then moved down to register the low of week at 1.2624 & finally closed at 1.2673.For the coming week we see 1.2600-1.2620 as initial support zone & 1.2680-1.2700 as initial resistance. Breach of 1.2060 will lead to head towards 1.2350-1.2370.  Swing traders should go short around 1.2680 with the stop of 1.2710 for the target of 1.2350-1.2370.However traders must guard themselves against volatile movements generated by the many events scheduled on next week.Remember trader’s discretion & judgment of price bottom formation while entering the trade is vital for profitability of trade & this can be done at that moment of time only.

EURO-INR JAN 2012 MCX-SXFUTURE:-Last week it opened at 67.4225 & made the high of 67.5675 on the same day of week.  It then kept on declining to mark the low at 65.5475 & finally closed at 66.1675.With the depreciating EURO & appreciating INR, it will face double whammy effect on downside & expect it to open the week with gap down. For the coming week we see 66.20-66.40 as resistance & 63.80-64.00 as support.  In our view aggressive swing trader should go short above 65.60 with the stop of 66.00 for the target of 63.80 & 64.00.Once the trade runs in profit trail the stop suitably for exit so that profit is compounded. Remember traders discretion & judgment of price behaviour while entering the trade is vital for right direction & this can be done at that moment of time only.

GBP-USD: -Last week it opened at 1.5404 & went up   to 1.5500 to mark the high of week. It then kept on declining for the rest of the week till 1.5231 to register the low of week & finally closed at 1.5316. For the week we see 1.54300-1.5450 as resistance & 1.52400-1.5260 as support. In our view aggressive swing trader should go long around  1.5280 with the stop of 1.5245 for the target of 1.5450.

GBP-INR JAN 2012 MCX-SX FUTURE :-Last week it opened at 81.7550 & went up to register the high of the week at 81.8375. It then relentlessly kept on declining to mark the low of the week at 79.0525 & finally closed at 79.3575. With the depreciating GBP & appreciating INR, it will face double whammy effect on downside & expect it to open the week with gap down. We are of the view that it has good support at 78.50-78.75 & resistance at 80.25-80.50. In our view aggressive swing trader should  go long around 79.90 with the stop of 78.60  for the target of 80.25 -80.50.  Once the trade runs in profit trail the stop suitably for exit so that profit is compounded . Remember trader’s discretion & judgment of price behaviour while entering the trade is vital for right direction & this can be done at that moment of time only.

USD-JPY:-Last week it opened at 76.860 & declined to mark the low at 76.62.It then rose to mark the high of week at 77.041 & finally closed at 76.900.For the coming week we see 77.00-77.10 as resistance   & 75.90-76.00 as support. In our view aggressive swing trader should  go short on any rally towards 76.90   with the stop of 77.10  for the target of 76.00 & lower. Once the trade runs in profit trail the stop suitably for exit so that profit is compounded . Remember trader’s discretion & judgment of price behaviour while entering the trade is vital for right direction & this can be done at that moment of time only.

JPY-INR JAN 2012 MCX-SX FUTURE:-Last week it opened at 69.1425 & this itself was the high of the week. It then kept on declining to mark the low of the week at 67.06 & finally closed at 67.4050.In our view there is initial support at 66.740-66.90 & resistance at 67.70-67.90.Breach of 66.70 will lead to retest of 65.80-66.00. In our view aggressive swing trader should go short around 66.60with the stop of 67.90  for the target of 65.80.

DOLLAR INDEX:-Last week it opened at 81.670 & went down to 82.045 to mark the high of the week.  It then fallen to 80.735 to mark the low of the week & finally closed at 81.791.In our view normally it should find resistance at 82.80-83.00 & support at 81.50-81.70.

PIVOT POINT TABLE

ECONOMIC CALENDER

SPECIAL NOTE: -We would earnestly request the readers to read carefully the qualifying conditions for the call to be activated. Without meeting the qualifier conditions call do not get activated & simply cursory look at chart & arrow may lead to erroneous call activation & financial losses.

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