Weekly Review and Outlook
Swiss Franc Broadly Higher on Greece Risk
The Swiss Franc ended last week as the biggest winner on risk aversion and European stocks tumbled sharply on Greece fears. Canadian dollar came second as lifted by less dovish than expected BoC statement as well as rebound in oil price. Meanwhile, dollar was the weakest one and ended broadly lower as a string on weak economic data basically ruled out the chance of a June Fed hike. Weakness in the greenback was closely followed by yen and Aussie. The development in Greece will be the main focus this week as Eurozone finance ministers will meet on Friday regarding the country's progress in reforms as well as disbursement of financial aids.
German DAX lost 686 pts, or 5.5% over the week. IMF said on last week that it will not give Greece any more time beyond May 12 to meet its debt repayment of around EUR 1b. Meanwhile Greece will need around 1.7b to pay pensions and wages by the end of April. Greece must strike a deal with Eurozone in the next few weeks to get the financial aids and thus avoid default and an eventual Grexit. Also, if a deal couldn't be reach, ECB could also cut off the lifeline for Greek banks.
US equities were also dragged down, S&P 500 failed to take out 2119.59 resistance last week and closed sharply lower on Friday at 2081.18. The development points to more sideway trading. In other markets, crude oil took out 54.24 resistance and completed a double bottom pattern (43.58, 42.03). Near term outlook in crude oil is turned bullish for stronger rebound and that would likely provide some support to the Canadian dollar. Gold, on the other hand, struggled around 1200 handle.
Dollar index failed to break through 100.39 resistance and weakened to close at 97.52. The development indicates more sideway trading would be seen in near term. At this point, we're still treating the pattern from 100.39 as consolidative even though a test on 96.32 support might be seen. Overall outlook in the index stays bullish as long as 94.05 support zone holds, 38.2% retracement of 94.47 to 100.39 at 94.31. Up trend resumption is still expected.
However, there are increasing risks to this bullish outlook. Firstly, USD/CAD's break of 1.2351 support raised the chance of medium term reversal. GBP/USD's break of 1.4971 resistance also opened up the case for stronger rebound back to 1.5551. USD/JPY would also likely extend the current fall through 118.32 support towards fibonacci projection level at 117.14. USD/JPY will also likely drop through 0.9471 support to extend the fall from 1.0127. Risk of further weakness in the greenback in these pair is high, at least in near term. On the other hand, EUR/USD is kept well below 1.1096 and AUD/USD below 0.7937, and thus maintained bearish outlook.
Regarding trading strategies, we entered short in GBP/USD last week but closed the trade due to stronger than expected rebound. EUR/USD short was entered at 1.0700. While EUR/JPY and EUR/AUD breached recent support last week, they both quickly recovered. EUR/GBP also formed a temporary low after dipping to 0.7163. Momentum of the choppy decline in EUR/CHF from 1.0807 was not too convincing. The more powerful decline was found in EUR/CAD. Overall, there is prospect of further recovery in Euro in near term. And as there is risk to dollar bullish outlook as mentioned above, we'll close the EUR/USD short too. We're looking at selling Euro again later and will decide whether to sell EUR/USD or EUR/CAD after looking at the development next week.