Talking Forex Weekly Wrap: March 30, 2012

 
The pair finished the week higher after Eurozone finance ministers on Friday agreed to enlarge their fiscal bailout system to EUR 700bln, a 40% increase. The increase will be achieved by setting aside the EUR 200bln currently committed to Greek, Irish and Portuguese bailouts from a new EUR 500bln bailout fund that will start in July which should allow the new ESM to have a full EUR 500bln in capacity even as the bailouts continue to run.

The joint EU bloc currency was also buoyed by better-than-expected German IFO index. Still, concerns continued to linger over the Iberian Peninsula and Italy after a less than impressive bond auction by the Italian Treasury prompted concerns over future debt sales and in turn sustainability of the debt reduction plan. S&P’s Kraemer has said Greece will probably have to restructure its debt again and this may involve bailout partners such as the IMF.

While IMF's Thomsen said Greece has made aggressive fiscal adjustments, although there is still uncertainty as to whether Greece can regain market access, and it will take a decade or longer to become fully competitive. In terms of technical levels, supports are seen at 1.3295, followed by the 10DMA line at 1.3279 and then at the 21DMA line at 1.3208. On the other hand, resistance levels are seen at 1.3385/91 and then at 1.3486.
 
GBP/USD

The pair traded in tandem with EUR/USD throughout the week and despite briefly trading above the psychologically important 1.6000 level, settled the week with modest gains. Still, the UK house prices slumped in March as the boost from the tax-break for first time buyers came to an end, according to mortgage lender Nationwide. The lender has commented that the challenging economic backdrop will likely weigh on house prices over the next 12 months.

Separately to this, Standard Chartered is concerned by the ‘interventionist’ way the UK’s FPC has defined its role and that it appears blind to the risks to financial stability created by central banks’ new and uncharted actions, according to the company’s CEO Sands. Finally, technical support levels are seen at the 200DMA line at 1.5850, followed by the 21DMA line at 1.5823. On the other hand, resistance levels are seen at 1.6037, 1.6095 and then at 1.6119.
 
USD/JPY
 
The settled the week little changed, as market participants continued to digest a slew of EU related commentary. Uncertainty over the fiscal path of both Spain and Italy in the second half of the week prompted an influx of risk averse trade flows which meant that the pair settled the week on a downward bias. Of note, BoJ’s Miyao has said the central bank is to take policy action decisively and carefully, adding that one path to end deflation is powerful easing however there is a need to secure credibility and flexibility in monetary policy. In terms of technical levels, supports are seen at 81.83/46 and then at 81.07.