Daily Report: Euro Rises again as German and French Leaders Reached Joint Position on Greek Bailout Package

The single currency moved higher again for the third consecutive day this week as the two biggest economy in eurozone, Germany and France reached a common position on how to handle the second Greek bailout plan after a 7-hour talk between French President Nicolas Sarkozy and German Chancellor Merkel in Berlin yesterday (ECB’s Trichet and EU President Herman van Rompuy also joined the talk by telephone), it seemed that it is getting closer and closed for the EU leaders to settle an agreement (involving 71 billon euro in new aid and 50 billion euro of a bank levy according to a source from news agency) after today’s summit meeting. Unwinding of EUR/CHF short positions due to early safe-haven flows also seen helping to push euro higher, Swiss economic minister expressed concerns over recent strength in Swiss franc and market talk of SNB decided to set up sovereign wealth fund for investing in Europe were two major factors contributing to retreat in Swiss franc, EUR/USD hit an intra-day high of 1.4275 and offers at 1.4280-1.4300 are in focus and stops above 1.4300 are within range. On the downside, bids from Asian sovereign names are reported from 1.4230 down to 1.4200 and more buying interest is tipped at 1.4170-80 with some stops placed below 1.4150 and more at 1.4100. In Swissy, bids from fund are reported at 0.8170 whilst offers from margin accounts are tipped at 0.8270 with stops building up above 0.8285/90 but more offers seen at 0.8330-40. 

The greenback also rebounded especially against Japanese yen and Swiss franc in part due to the news that U.S. President Obama is willing to accept a raise of short-term debt ceiling to avoid a default whilst allowing for more negotiations on measures to reduce long term debt. USD/JPY slipped this morning to a low of 78.61 (some stops at 78.65 were tripped) as some margin traders became in patient and squared their long USD/JPY position due to the lack of actions by Japan’s officials, the release of better-than-expected Japan June trade balance data was also supporting the yen. Having said that, bids in good size from Middle East names are reported around 78.50-60 and big stops remain below 78.40, on the upside, offers from exporters and Japanese lifers are tipped from 79.00 up to 79.30 with stops starting to build above 79.35/40 and more at 79.65/70. 

The British pound was dragged higher by the rising euro in Asian session and offers at 1.6175-80 were cleared and mixture of offers and stops at 1.6195-00 is now in focus, if these stops are triggered, next offers from U.S. names are noted at 1.6215 and cable may surged to 1.6240-50 where more offers are reported. However, some traders are awaiting the release of UK retail sales data at 08:30GMT with market consensus expect to see a better figure in June than May, to rise from -1.6% to 0.8% m/m and 0.0% to 0.2% y/y. At the moment, bids from various parties, including Middle East and Eastern European names are located at 1.6150 and further out at 1.6100. 

Elsewhere, aussie also edged higher this morning, however, good size offers are still seen in the region of 1.0800-1.0820 whilst on the downside, bids are located at 1.0700/05 with stops building up below 1.0700 but more bids are tipped at 1.0650-60.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.4152; (P) 1.4196 (R1) 1.4258;

Break of 1.4282 resistance indicates that rise from 1.3837 has resumed and intraday bias is back on the upside for 1.4577 key near term resistance next. Decisive break of 1.4577 will indicate that the whole correction pattern from 1.4939 has completed with three waves down to 1.3837. In such case, the medium term rally should be resuming for 1.5 and above. On the downside, below 1.4014 will bring another fall. But after all, we'd expect strong support from medium term trend line (now at 1.3783) to contain downside to finish the corr3ection from 1.4939.

In the bigger picture, EUR/USD is still trading above medium term trend line support from 1.1875 (now at 1.3783) and thus, rise from there should still be in progress. We'd continue to favor the bullish case that correction from 1.6039 has completed with three waves down to 1.1875 already and. Above 1.4939 will target 1.5143 resistance first. Break will affirm the bullish case of long term up trend resumption for another high above 1.6039. However, sustained trading below the mentioned trend line support will indicate that there should at least be one more medium term decline, possibly for below 1.1875, before correction from 1.6039 completes. 

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:01	GBP	UK Nationwide Consumer Confidence Jul	51	49	55
23:50	JPY	Trade Balance (JPY) Jun	-0.19T	-0.25T	-0.47T	-0.45T
4:30	JPY	All Industry Activity Index M/M May	2.00%	1.80%	1.50%	1.40%
6:00	CHF	Trade Balance (CHF) Jun	1.74B	2.47B	3.31B	3.25B
7:30	EUR	German PMI Manufacturing Jul P		54.1	54.6
7:30	EUR	German PMI Services Jul P		56.1	56.7
8:00	EUR	Eurozone PMI Manufacturing Jul P		51.5	52
8:00	EUR	Eurozone PMI Services Jul P		53.2	53.7
8:00	EUR	Eurozone Current Account (EUR) May		-4.7B	-5.1B
8:30	GBP	Public Sector Net Borrowing (GBP) Jun		10.4B	15.2B
8:30	GBP	Retail Sales M/M Jun		0.80%	-1.60%
8:30	GBP	Retail Sales Y/Y Jun		0.20%	0.00%
8:30	GBP	Retail Sales w/Auto Fuel M/M Jun		0.60%	-1.40%
8:30	GBP	Retail Sales w/Auto Fuel Y/Y Jun		0.40%	0.20%
9:00	CHF	ZEW Survey (Expectations) Jul			-24.3
12:30	USD	Initial Jobless Claims		405K	405K
14:00	USD	House Price Index M/M Jul		0.40%	0.80%
14:00	USD	Leading Indicators Jul		0.20%	0.80%
14:00	USD	Philly Fed Survey Jul		4.5	-7.7
14:30	USD	Natural Gas Storage