Euro remains weak and hovers around record low against Swiss franc as the week starts. Uncertainties in the Greece situation is still in traders' mind and is weighing on the common currency. The parliamentary approval of the new austerity measure later this week is expected by most, but the outcome is far from being certain. Greece deputy prime minister warned on Sunday that some lawmakers might block some of the reforms. Indeed, the situation will remain unclear as some lawmakers would refrain from making clear their stance until the last minute. And more importantly, traders are also lightening their bet as the Euro could have very different reactions to the vote outcome. Logically, parliamentary approval of the austerity should clear the hurdle for getting the next tranche of bailout from EU/IMF and should be Euro positive. But that could turn out to be a sell-on-news scenario in EUR/USD.
Chinese Premier Wen Jiabao expressed his backing to Europe over the weekend by pledging to keep investing the the regions' sovereign bond markets. Wen told BBC that China has actually increased the purchase of government bonds of some European countries, and we haven't cut back on our euro holdings." And he said that showed China's "confidence in the economies of the European countries and the eurozone." Also Wen stressed that "friendship and cooperation between China and European countries are most keenly shown in the times of difficulties."
The Bank of International Settlement warned in its annual report that "the prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis. And, "tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks." And currently, many emerging markets now "run the risk of building up imbalances very similar to those seen in advanced economies in the lead-up to the crisis", and that's property prices advancing in "staggeringly rapid rates, price sector indebtedness "rising fast".
On the data front, New Zealand trade surplus came in narrower than expected at NZD 605M in May. US personal spending and income will be the main focus. Income in expected to rise 0.4% in May while spending is expected to up 0.1%. Inflation is expected to be subdued with core PCE at 1.1% yoy even though headline PCE should climb to 2.4% yoy.
NZD/USD is notably weaker today on risk aversion as well as the disappointing trade figure. A near term top was formed earlier at 0.8300 and consolidations from there will likely extend further to 0.7755 support and below. At this point, there is no sign of medium term reversal yet and hence, we'd expect strong support from lower trend line (now at 0.7312) to contain downside and bring rebound.
EUR/JPY Daily Outlook
EUR/JPY continues to consolidate above 113.49 temporary low and intraday bias remains neutral for the moment. Nevertheless, note that near term bearish outlook is also unchanged with 116.69 resistance intact and recent fall from 123.31 is still expected to resume sooner or later. Break of 113.41/49 support zone will target 61.8% projection of 121.83 to 113.41 from 117.88 at 112.67 first and then 100% projection at 109.46 next. On the upside, though, break of 116.69 will suggest short term bottoming and will turn focus to 117.88 resistance for confirmation.
In the bigger picture, it's getting more likely that choppy rebound from 105.42 is merely a correction in the down trend from 2008 high of 169.96 and has finished at 123.31 already. In other another low below 105.42 is likely. Nevertheless, we'd start to look for reversal signal again around 100 psychological level unless weekly MACD would break it's up trend line. On the upside, break of 123.31 resistance should now confirm medium term reversal and should target 139.21 key resistance.
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