Technical Analysis: EUR/USD, GBP/USD, USD/JPY, and USD/CAD

EUR/USD

European leaders  sparred with Greece over a second rescue program, clouding progress toward a permanent aid fund and tougher budget rules designed to stabilize the euro .Greece faced criticism that its economic makeover is faltering, and it fended off German-led calls for a European overseer to take command of its budget after its deficits surpassed targets for two years.“What the Greeks have to do is show they are ready to implement the package,” Dutch Prime Minister Mark Rutte  told reporters as he arrived for a European Union summit in Brussels today. “We can help Greece through this difficult phase, but then Greece has to execute all agreements they made with us.”Bargaining with Greece over a debt writedown and its economic management threatened to overshadow a summit meant to point the way out of the financial crisis by speeding the setup   of a full-time 500 billion-euro ($654 billion) rescue fund and signing off on a German-inspired deficit-control treaty.A start-of-year respite from market pressures continued today when Italy raised 7.5 billion euros, close to its maximum target, in preparation for its biggest redemption of 2012. At least five more countries plan bond sales this week. The euro slipped 0.9 percent to $1.3160 at 5:30 p.m. in Brussels,snapping a five-day rally.

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GBP/USD

U.K. stocks  fell for a second day as European Union leaders met in Brussels amid concern over a deteriorating economy and Greece’s failure so far to finalize a debt-swap deal with private creditors.Banks retreated, with Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc each losing at least 3.5 percent.The FTSE 100 Index  decreased 62.36, or 1.1 percent, to 5,671.09 at the close in London, falling the most since Dec. 14. The gauge has still gained 1.8 percent this year, on speculation that the euro-area policy makers will contain the region’s debt crisis. The FTSE All-Share Index also retreated 1.1 percent today, while Ireland’s ISEQ Index lost 0.9 percent.U.K. stocks last week trimmed gains and European stocks declined after a report showed the U.S. gross domestic product grew slower than forecast in the fourth quarter.“It’s perfectly natural that investors reap profits after the climb we’ve seen in the first weeks, especially after U.S. GDP numbers on Friday made them think twice about the strength of the U.S. recovery,” said Mikkel Kierkegaard Petersen, a   senior equity specialist at Nordea Private Bank in Copenhagen.“The Greek situation hasn’t been resolved either and yields are rising in Italy and Portugal.”European Union leaders have gathered today for their first summit in 2012 to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year.  

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USD/JPY

 Prime Minister Yoshihiko Noda ’s call for a weaker yen to boost exports was dealt another blow when the Federal Reserve extended its pledge to keep U.S. interest rates near zero, driving yields on U.S. five-year notes to the lowest in 20 years relative to Japanese debt of similar maturity.The difference  in interest rates, a barometer for exchange rates between the countries, shrank to 40.2 basis points on Jan. 30, the least since 1992, according to data compiled by Bloomberg. The two-year gap was 7.5 basis points, compared with the average of 200 basis points over the past 10 years.Japan intervened  in currency markets at least three times in 2011 to counter gains in the yen that contributed to the country’s first annual trade deficit in three decades. The Fed’s statement sent U.S. five-year yields to the lowest on record,reducing the allure of dollar-based assets relative to those denominated in yen. “Because the Fed extended its time frame for monetary easing, the bias is for the yield spread to narrow between Japan  and the U.S.,” said Shuntaro Take , the deputy general manager for the corporate accounting and investment department at Tokio Marine & Nichido Life Insurance Co., which manages the equivalent of $48 billion in Tokyo. The shrinking rate difference is “a cause for the yen to strengthen,” Take said.

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USD/CAD

Canadian lenders  are loosening standards on mortgages that are similar to U.S. subprime  loans,posing an “emerging risk” to financial institutions, according to the country’s banking regulator. Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show. “Non-income qualified” lending has been added to a list of issues to be considered by OSFI’s “emerging-risk committee,” the documents show. “It just speaks to the general easing in lending standards, which has contributed to a booming housing market,” said David Madani , an economist in Toronto with Capital Economics, which estimates that Canadian housing prices may fall 25 percent over the next few years. “The problem is sort of baked in now, so I’m not sure there’s a way to prevent a weakening of the housing market.”  Canada’s housing market has surged since the 2009 recession as near-record low mortgage rates  fueled prices and home purchases, unlike the U.S., where sales and values  have fallen since 2007. Bank of Canada Governor Mark Carney has said record consumer debts are the greatest domestic threat to the country’s financial institutions, even as the central bank has held the benchmark rate at 1 percent since September 2010.

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