The next big event of the week after Greece bailout will be ECB’s offer of its 2nd batch of 3-years Long Term Refinancing Operation money (LTRO) i.e., loans to banks that will be credited on Feb 29.
In December last year ECB gave about EURO 489 billion. This ECB offer was almost free of cost that it lends against collateral, out of which about Euro 300 billion was allocated to old loans while, the remaining amount of Euro 189 billion was fresh money.
Release of Euro-zone money supply data on Monday for the month of January will provide more clues about the success of 1st ECB tranche. One thing is for sure that it has brought down the borrowing cost of Spain and Italy and some stability can be seen the European banking system.
The 2nd offering of Feb 29 is likely to release more cash money by injecting ample of liquidity to make lending easier and to increase market activity. ECB has already relaxed its tough ratings stance/rule for certain asset backed securities that will provide better access to small and medium size banks. Keeping is view the trend and utilization of funds of 1st offering, this offering could be lower.
It may be true that as of now Europe is clam. European Union leaders will be meeting on Tuesday and Friday this week to formulate policies. The financial safety net for protection will be core issue of discussion, as leaders will be demanding firewalls for EFSF bailout and ESM funds due by the June/July this year.
However, discussion on Greece will also dominate talks in Brussels. Greece already facing protest at home will be required to explain implementation of its austerity plan that how it will slash salaries and how it plans to cut pension and reduce spending.
Greece is not yet out of woods, as it has poor record of past for not implementing budgetary reforms, which remain a bigger challenge and threat to stability in the region.
Financial market should also be prepared for possible rough ride that if Merkel faces tough time from its parliament, which is split on many issues pertaining to Greece bailout funding that, requires final approval may swing the market mood. Hence, perhaps it may not be the correct assumption to draw a conclusion that European problems are over by any means.
It is going to be a busy week in the sense that G-20 is meeting in Mexico, EU leaders in Brussels and German parliament will be discussing Greece bailout, so lesser focus will be on economic news from Europe and USA. But market will certainly concentrate on the European development and any unexpected happening in region could create volatility in global stock market and in the foreign exchange market.
EURO @ 1.3447 = The LTRO announcement this week will keep the sentiment for Euro Bullish that will initially give boost to the European currency. But German parliament meeting and EU leaders gathering in Brussels may create volatility, which means market should avoid relying on one sided move. Another factor that is helping Euro to gain strength is strong crude oil prices due to its co-relation with US Dollar.
Euro will find 1st strong resistance around 1.3520-40 area and only break of this barrier would encourage Euro to move towards 1.3663. While, on the down side 1.3410 is the key level to watch, a break of this support level would challenge 1.3340, if surrenders 1.3250 a less likely probability.
GBP @ 1.5870 = Pound Sterling will have strong tine during the week and buying on dips will be preferred. Cable has strong good around 1.5810 and only break would risk for 1.5750. But on the upside a break of 1.5910 will encourage for a test of 1.5950. But further up Cable will find strong resistance around .160
JPY @ 81.19 = Quite a few things is happening that has shifted Japanese currency’s sentiment. Yen that is often considered a safe haven currency is caused by BOJ’s effort that has constantly opted for monetary easing by injecting liquidity through its asset purchase program seemed to have worked well. The pressure seemed to have increased as Japanese importers thought to have been holding Yen are now purchasing foreign currency by selling Yen.
Higher Oil prices do not support the Japanese currency, as Japan import bulk of its oil from abroad. Higher oil price distract its trade number and with Iranian tension in sight Oil price will not ease unless chances of conflict reduced, which is bad for JPY, so any correction could be short lived. But one factor that we have to keep in mind is the Japanese year that ends in March. Generally, there is plenty of volatility noted around Japanese year end, as overseas company look for better rates to repatriate funds to their head offices in Japan.
The currency may resist around 80.40 or else 79.80 is the key resistance level. A break of 81.62 could further weaken the currency to 82.50. Tough chart suggest that if the weakness continue Yen could hit lows of 83.48. I do not see occurrence of such a move as buyers could hop in. Yen has history of big moves in this period. All eyes should be kept on Oil and development in Iran any easing could see investors jump in to take advantage of cheap Yen.
CHF @ 0.8958 = Basing 1.2050 as midpoint EUR/CHF, threat of intervention may not encourage major move unless Swiss Central Bank steps in, hence, Swiss Franc will move in line with other currencies. CHF has strong support around 0.9080, which may not surrender easily and the currency should find buyers around 0.09040-50 for a move towards 0.8890, a break of this level may see more gains for the currency, which see a test of 0.8820. Break of support level will encourage for 0.9150.
GOLD @ $ 1771.90 = The anticipated move did occur last week gaining $ 65 to hit the highs of $ 1789.5 before Gold eased a bit. Demand for gold will continue due to global developments. There are too many supportive factors, the biggest will be LTRO expected to inject excessive liquidity. Easing UK stance and expectation that USA may consider another easing soon. China’s credit easing, strong bounce back of Indian Rupee and demand for gold from other Asian buyers is all going to help the metal.
Gold has strong support around $ 1764-65 and is likely to hold. Once it clears $ 1780 convincingly, $ 1792 would be the next level to watch that may easily surrender for $ 1810. If seen gold will find strong resistance and only break of this level could challenge $ 1835. However, on the down side strong baseline support is at $ 1744.
Feb 24 - Long EURO around 1.34 could be Risky