A wave of anti-austerity election results has shifted the market's attention away from the weak US payroll reports and has sent traders in search of safe-havens. France Socialist leader, Francois Hollande defeated President Sarkozy. Frances's new socialist President Hollande has expressed his distaste for the EU fiscal treaty and vowed to hold back France's vote until additional growth measures are included. However, we suspect Hollande will be more realistic with his insistence on changes in the fiscal pact by balancing demands with practical expectations of the bond market. Moving forward, we don't expect the new president to damage their cost of capital and are already hear advisors tone down Hollande rhetoric. On the other hand the situation in Greece is potentially more destablizing. In Greece, the two primary parties which supported the bailouts, failed to win a clear majority. The populist shift away from pro-bailout parties indicates that any new government will need to yield the demand for less significant austerity measures and increase the probability of another Greek default. The IMF quickly cautioned that it may delay Greece's June payment deviated from the current austerity path. The fragmentation of the new Greece government will certainly make implementation of the spending cuts of €3bn already promised by the previous government (along with deep cuts in 2013 & 2014), more difficult. The lack of forward progress will immediately call into question the next tranche of EU /IMF aid. An unnamed IMF source told Reuters 'if there is no agreement on the new cost-cutting, the payments for Greece will be withheld until there is a satisfactory understanding'. Perhaps the only EUR positive news coming from Europe right now was the stronger than expected Factory Orders which jumped m/m to 2.2% vs. 0.5% exp. But in the near term, we expect the single currency to be weighted down by news of Greek coalition building shifting toward anti austerity parties gaining further influence. Risk aversion put commodity currencies on clear back-footing as the AUDUSD tumbled to 1.0110 from 1.0163 and NZDUSD slipped marginally to 0.7907. Oz economic data failed to provide AUD with much support as retail sales printed a strong 0.9% m/m vs. 0.2% exp ( 1.8% q/q vs. 0.5% exp). In addition, building approvals bounced back by 7.4% vs. 3.1 exp vs -8.8% prior, and business confidence crawled up to 4 from 3 prior read. Crude oil remains on offer as WTI fell sharply in the last three days to $95.34 from $105.25 last week as the global economic outlook looks less optimistic.
2012-05-07T00:00:00 GBP UK Public holiday2012-05-07T07:00:00 EUR SP Industrial production % y/y -4.9 exp -5.1 prior2012-05-07T07:15:00 CHF CPI, % 0.2 (-0.9) exp2012-05-07T10:00:00 EUR GE Factory orders, %m/m (y/y) 0.5 (-2.8)exp2012-05-07T16:15:00 IMF MD Lagarde speaks2012-05-07T19:00:00 USD Consumer credit, chg, $ bn 10.0 exp 8.7 prior2012-05-07T23:01:00 GBP BRC shop price index2012-05-07T23:15:00 USD Fed President LackerEURUSD spent much of last week oscillating between 1.3122 and 1.3179 levels, but lacked the momentum to really continue its fragile uptrend. Since then European political concerns have returned the a vengeance and the pair has collapsed to a low of 1.2955; negating all near term support and turning our previously bullish bias to bearish. Below us, first support from here is the 1.2955 (intraday low), 1.2930 (25th Jan pivot low), 1.2875 (20th Jan low). Any subsequent rallies are likely to meet sellers back up through 1.3081 (gap high), 1.3122 (2nd May low), 1.3179 (7th May pivot high), 1.3277 (support turned resistance), 1.3341 (3rd April pivot) and key level 1.3385 (27th Mar high).
GBPUSD Much like EURUSD, GBPUSD has receded lower at the start of last week, negating its current uptrend channel and shifting our bias to mildly bearish. The low price for the day was 1.6116 (breaking 1.6155 support), and regardless of the marginal recovery rally this morning, price action suggests further losses may be on the cards this week. If this rally can gather new bids in the coming sessions next resistance is located at 1.6194 (200d ma), 1.6207 (4th May high), 1.6302 (30th May high), 1.6335 ( 31st Aug 11' high), 1.6455 ( 29th Aug 11' high). On the downside, support is located at 1.6078 (25th April low), 1.6014 (19th April reversal low), 1.5970 (17th April reversal top), 1.5804 (5th April low), 1.5771 (22nd Mar low), 1.5754 (16th Mar breakout lvl).
USDJPY US labor data on Friday and political risk emulating form Europe provided the catalyst for a USDJPY to retest the 2-month lows at 79.84 and means we are heading towards potentially ugly confrontation between USDJPY sellers and the Japanese authorities who have made it very clear they don't appreciate yen gains. First supports now come in below us at 79.65 (1st & 7th May lows) then 79.53 (15th Feb low) then 79.11/16 (31st Oct 11 reaction high & Fibo lvl). On the upside it's worth noting next resistance at 80.61 (2nd May high), 81.77 / 88 (failed corrective rally), 82.56 (6th April high), 82.99 (3rd April high), trigger resistance at 83.40 (27th Mar high), 84.18 (15th Mar high & extension target), 84.51 (15th Dec '10 high), then 85.50 (Fibo lvl from 101.00 to 75.60)
USDCHF looks to have bottomed out at 0.9043 at the end of last week, as since that point it's been all one-way traffic heading higher. In the meantime, first support on the downside remains at 0.9043 (2nd May low), 0.9009 (27th Feb high), 0.8955 (11th Nov '11 pivot), then stubborn barrier support at 0.8931 (24th & 29th Feb low). Further rallies are likely to meet sellers back up through 0.9271 (intraday high), 0.9335 (15th Mar high), 0.9381 (23rd Jan high), 0.9413 (19th Jan high), and 0.9497 (18th Jan high).
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