WEEKLY FX WRAP - 03/02/12

EUR/USD
In spite of ending the week with a net loss of around 100pips, the fact that the pair managed to settle above 1.3100 level indicates that the outlook remains mildly bullish. Of note, the spread between the 3-month implied vs. realised volatility held steady, while the spread between the 1-month implied vs. realised volatility tightened further. In terms of this week’s news flow, the FT reported that EU banks may tap the upcoming 3-y LTRO for up to EUR 1trl, the pair finished the session lower as market participants continued to fret over the lack of progress in Greek debt swap talks. In addition to that, the opinion poll published by IFOP/Fiducial showed Mr Hollande in France extended his lead for the first election round on April 22 to 6.5 percentage points from 4 points two weeks ago, with 31% support against 24.5% for Mr Sarkozy. The significance of this is that Hollande has made it clear that none of the recent treaties and agreements would stand in their current version if elected, in the process overturning austerity and the position of the ECB in Europe. Finally, technical studies indicate that supports are seen at 1.3027, followed by the 21DMA line at 1.2937 and then at 1.2854. On the other hand, resistance levels are seen at the 32.8% retracement of 1.4244-1.2624 at 1.3244 and then at the 21Day Upper Bollinger Level at 1.3305.

GBP/USD
Despite the fact that debt talks in Greece has failed to produce any meaningful result, the never-ending speculation of an imminent deal prompted broad based risk appetite. In terms of the latest UK related economic commentary, UK house prices fall faster as demand slips over concerns on the domestic economy. “The balance between supply and demand is clearly shifting and points to an acceleration in price falls in the coming months” according to the Hometrack Director of Research Donnell. However, the Services PMI came in above the street consensus estimate, while according to Markit research; recession looks increasingly unlikely after manufacturing, construction and services data. In terms of technical levels, supports are seen at the 10DMA line at 1.5721 and then at the 100DMA line at 1.5664. On the other hand, resistance levels are noted at 1.5888 and then at the 21Day Upper Bollinger Level at 1.5911.

USD/JPY
The pair finished the session little changed following a sharp rally on Friday post the jobs report issued by the BLS which resulted in a sharp rally back towards 77.00 level. Of note, Japanese Finance Minister Azumi has said the domestic economy cannot overlook speculative moves in the foreign exchange market, and he will take decisive steps if necessary to intervene. In terms of technical levels, supports are seen at 76.42/03, while resistance levels are seen at 76.87 which is the 38.2% retracement of the Jan-25th-Feb-1st move, followed by the Ichimoku Cloud Base at 77.43.