Markets focusing on the positive and seemingly ignoring Greek event risks…for now

USD once again loses out on the day as high beta currencies like SEK and NOK come out on top. EURUSD as well made a comeback as it comfortably trades above 1.2800. While the fundamentals on EUR have not changed, the markets seem to be selective on the news flow on Europe, grasping on to the positive headlines. News that the IMF will attempt to increase its lending capacity and a successful Portuguese bills auction carried the day. However, the US Treasury said that they had no intention to seek additional resources for the IMF; this would be political sensitive issue in an election year. Also, Bundesbank head Weidmann said that he sees exceptional risks to the Eurozone economic outlook and reiterated his Opposition to ECB unlimited bond buying. The real driver for the markets in shaping sentiment will be the PSI negotiations. So far, the news flow does not seem constructive. Le Monde reported that French banks will have to boost their write down on Greek debt to 70-75% from the current 60% level and Greek PM Papademos publicly said that he is considering legislation that could force any holdouts to accept the PSI deal. The recent EUR price action indicates how vulnerable the market is to short -squeezes on the back of positive euro zone news flow, but given that several risks lie ahead, investors are likely to view this current short squeeze as an opportunity to re-enter short EUR positions. Also, the risk is that an agreement may not be ready by Monday's Euro group meeting – which can potentially leave markets uneasy. Greece aside, the focus for today will be on the Spanish and French bond auctions, post S&P downgrade. Thus, with several events ahead, EURUSD remains vulnerable to further downside.

Australian labour market data key for RBA policy expectations

This morning’s Australian labour market data will be crucial in shaping RBA policy expectations. The market is already fully pricing in a 25bp cut for February and more than 90bp over the next 12 months. We expect a rebound in Australian Employment for the month of December +25k vs. -6.3k in November. Consensus is looking for 10k. Thus, AUDUSD has potential to rally further especially now that it has broken the 200 day ma at 1.0411. However, the risk to this is any negative news on Europe which would leave AUD particularly vulnerable. Thus far, it looks like the market has been somewhat complacent about these risks. In our view, FX vols in AUD in particular are significantly under-pricing Eurozone event risks and the potential spill over effects. And so, we recommend long AUD vol strategies and/or buying AUD puts as a hedge.

CPI and Philly Fed index on the calendar today

US data on Wednesday yielded no FX impact. Headline PPI came in lower than consensus (-0.1%) while core PPI was slightly above consensus (0.3%). Industrial production rebounded in December due to the strength of manufacturing Production. The November TICS data was massively inflated due to the BoJ’s intervention at the end of October. But extracting this from the data, (meagre) capital inflows imply that the US is struggling to finance its current account deficit via long term flows which reinforces our USD negative view in the medium and long term. As for today, headline CPI should come in flat given the decline in energy prices; however, core inflation should edge lower due to deep discounts from retailers. Also we expect the Philly Fed index to improve in January. This will further verify the markets relatively positive outlook on the US economy especially since it indicates that the ISM remains firm given its strong correlation.

USD-INR JAN 2012 MCX-SX FUTURE:- Yesterday it opened at 50.90 &  made the high at 51.03 of the day. It had then fallen to 50.5425 to mark as low of the day & finally closed at 50.5850.For the day we see initial support at 50.10-50.15, resistance at 50.55-50.60 & this is likely to be trading range of the day. Breach of the support at 50.10 may lead to retest of 49.75-49.80. Swing trader should go short around  50.50  with the stop of 50.65. for the target of   50.15 & 49.75. Kindly reduce the quantum of lot as stoploss used are wide due to volatility. Remember traders discretion & judgment of price behaviour during the entry of trade  is vital for profitability of trade  & this can be done at that moment of time only.

EURO-USD:- Yesterday it opened at 1.2736 & made the low at 1.2735. It had then risen to 1.2864 to mark as the high of the day & finally closed at 1.2862. For the day we see initial support at 1.2780-1.2800 & resistance at 1.2880-1.2900.The cross above 1.2900 will lead to retest of the 1.3040-1.3060.  Swing trader should go long around 1.2810  with the stop of 1.2780 for the target  1.2880 &1.3040 . Traders discretion & judgment of price rally top/price decline bottom while entering trade,  is vital for profitability of trade  & this can be done at that moment of time only. 

EURO-INR JAN 2012 MCX-SX FUTURE :-  Yesterday it opened at 65.0225 & made the high at 65.1925 of the day. It had then fallen to 64.7150 to mark as low of the day & finally closed at 64.8150. For the day we see initial support at 64.40-64.50 & resistance at 65.40-65.50.Cross above of 65.50 will lead to retest of 66.50-.   In our view aggressive  swing trader should go long around  64.60  with the stop of 64.50  for the target of 65.50 & 66.50. Once the trade runs in profit trail the stop suitably for exit so that profit is compounded & any higher target can also be taken advantage of it.

GBPINR JAN 2012 MCX FUTURE :- For the day we see support at 77.30-77.50 & resistance at 78.50-78.70 .Cross above 78.70 will lead to retest of 79.80-80.00.  In our view traders should go long around 77.50 with the stop of 77.00 for the target of 78.50 & 79.80.                   

JPYINR JAN 2012 MCX FUTURE :-   For the day we see  support at 65.40-65.45 & resistance at 65.90-66.00. Cross above 66.00 will lead to retest of 66.50-66.60   In our view traders should go long around 65.45  with the stop of 65.30  for the target  of  65.90 & 66.50.

PIVOTPOINT-TABLE

ECONOMIC CALENDAR 

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.

THIS IS THE PORTRAY OF GENERAL BROADER MARKET VIEW WITHOUT ANY SPECIFIC STRATEGY & SHOULD NOT BE CONSTRUIED AS SPECIFIC CALLS.FOR THE MORE POIGNANT VIEW ON MARKET,WINNING STRATEGY & PIN POINT TIMELY PRICE LEVEL CALLS, CONTACT US  TO SUBSCRIBE FOR OUR PREMIUM SERVICES.