Daily Report: Euro off from 4-Week High on Renewed Worries Over Eurozone Debt Crisis Contagion

The single currency has remained under pressure after yesterday's sharp retreat on renewed worries over eurozone debt crisis contagion, euro traded off over 1-month high of 1.4537 after rating agency Standard & Poor's said Greece will partially default on its debt once EU officials finish implementing the second Greek bailout plan agreed last week, S&P also downgraded Greece rating from CCC to CC (junk status) with negative outlook. Comments from German Finance Minister Schaeuble also put euro on the defensive side as he warned in the newspapers that the eurozone debt crisis wasn't over yet and Greece will need a decade to get its competitiveness back to normal, he was against providing a ‘blank check' for the EU rescue fund (EFSF) to buy bonds of troubled countries in the secondary market, Italian bonds and stocks fell sharply again on revived concerns on spreading debt crisis. EUR/USD is trading well below 1.4400 and offers from U.S. investment houses are reported at 1.4380-1.4400 and further out at 1.4450 with stops placed above the latter level and 1.4500. On the downside, bids from European names are noted at 1.4330-40 to protect stops below 1.4320, some traders are watching a break of 1.4300 where more stops are located. A series of economic releases are scheduled today including German unemployment data (07:55GMT) and eurozone confidence index (09:00GMT).

Despite rebounding from a 4-month low of 77.57 to 78.17 yesterday on short-covering, the greenback slipped again versus the Japanese yen on broad-based rebounded in the Japanese currency after Jiji Press reported that Japan Economic Minister Kaoru Yosano is closely watching the development of U.S. debt talk and he will wait for the outcome before deciding on intervention, he also said while meeting Aichi Prefecture governor Omura (who believed to have requested the government to take action to stop yen's strength) that intervention as big as 1-2 trillion yen would be quite difficult. Stops are still noted below 77.50 barrier and more option triggers are located at 77.25 and 77.00 (large) whilst offers remain from 78.00 up to 78.20 with some stops placed above 78.30 but mixture of offers and stops is still seen at 78.70-80.

The British pound traded narrowly after yesterday's euro-led retreat from 6-week high of 1.6440, due to lack of fresh stimulus and economic release (only CBI reported sales at 10:00GMT), further sideways trading would take place. We heard some bids around 1.6300-10 for protection of stops below 1.6300 but sizeable stops are parked below 1.6250 with more buying interest expected to appear above this level.

In Swissy, the pair is still trading near record low of 0.7996 formed earlier this week on safe-haven flows, however, bids to protect 0.7990 option barrier are still protecting dollar's downside, more option barriers are tipped at 0.7950, 0.7900 and further out at 0.7850. Sell orders from various parties are lined up from 0.8040 up to 0.8060 with some stops seen at 0.8080 but more selling interest should emerge around 0.8100.

Elsewhere, Reserve Bank of New Zealand left interest rates unchanged at 2.5% as widely expected and the accompany statement said there is no need to keep current rates much longer, market interpreted the remark as the central bank may raise rates as early as September with room for a 50 basis points hike. 

EUR/JPY Daily Outlook

Daily Pivots: (S1) 111.57; (P) 112.39; (R1) 112.85; 

EUR/JPY dips to as low as 111.53 so far today but with 111.45 minor support intact, intraday bias remains neutral. Price actions from 109.57 is treated as consolidations in recent decline only and upside is still expected to be limited by 113.49 resistance. on the downside, below 111.45 minor support will flip bias back to the downside for 109.57 first. Break will target 100% projection of 123.31 to 113.41 from 117.74 at 107.84 next. Also, note that break of 113.41/117.74 resistance is needed to confirm reversal or we'll stay cautiously bearish.

In the bigger picture, current development suggests that rebound from 105.42 medium term was merely a correction and has completed at 123.31 already. Whole down trend from 2008 high of 169.96 was not finished yet and is still target a new low below 105.42. Nevertheless, in that case, we'd start to look for reversal signal again around 100 psychological level unless weekly MACD would break it's up trend line.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
21:00	NZD	RBNZ Rate Decision	2.50%	2.50%	2.50%
23:50	JPY	Retail Trade Y/Y Jun	1.10%	-0.50%	-1.30%
7:55	EUR	German Unemployment Change Jul		-15K	-8K
7:55	EUR	German Unemployment Rate Jul		7.00%	7.00%
9:00	EUR	Eurozone Consumer Confidence Jul F		-11.4	-11.4
9:00	EUR	Eurozone Economic Confidence Jul		104	105.1
9:00	EUR	Eurozone Industrial Confidence Jul		1.6	3.2
9:00	EUR	Eurozone Services Confidence Jul		9.2	9.9
10:00	GBP	CBI Reported Sales Jul		2	-2
12:30	USD	Initial Jobless Claims		412K	418K
14:00	USD	Pending Home Sales M/M Jun		-2.00%	8.20%
14:30	USD	Natural Gas Storage		38B	60B