Greece made history yesterday as the first ever Eurozone nation to be officially rated as defaulting on its debts, after ratings agency Standard and Poor’s put the country on a “SD” rating, (selective default) in the wake of the insertion of the collection action clauses, in the latest bond swap package.
The market’s reaction was one of complete indifference, such is the reality of life in this latest, but not unexpected twist in what has become the almost everyday routine of the European debt crisis.
Standard and Poor’s also put the rating of the bailout fund the EFSF on a negative outlook, in line with its ratings on France and Austria.
The German parliament also voted through the latest Greece bailout package with Angela Merkel warning of doom and gloom if the bill wasn’t passed. The old line of “if the euro fails then the EU fails” was given its customary airing by the German leader while she also pushed back on G20 and IMF demands to boost the new bailout fund, saying it was not necessary.
Even though this bailout made it through the German parliament it is becoming very apparent that the German public is losing faith in the current bailout policy, and politicians worried about re-election could well start to reflect this mood. As such the scope for further bailout cash could well be much more difficult to attain as public opinion swings against further taxpayer cash for other European countries.
After the success of the German vote it is the turn of the Finnish parliament to debate the bailout package followed by a vote tomorrow.
In economic data due out this morning there is the latest German inflation numbers with CPI for February expected to slip back slightly from 2.3% to 2.2%, while German Gfk consumer confidence for March is expected to pick up slightly from 5.9 to 6.
One other key outlier is an expected decision by the Irish Attorney General on whether an Irish referendum is required on the new EU fiscal compact, which if in the affirmative could well be introduce an uncertain new element into the current crisis.
Portugal is also due to publish its latest financial health check from the troika who have been assessing the country’s progress under its €78bn bailout plan.
Italy is also due to sell €6.25bn of 5 and 10 year new bonds with yields set to fall again, this time below the 6% level helped in no small part by the ECB’s LTRO program, though the effects have been more marked at the shorter end, though the 10 year is still expected to yield around 5.7%.
In the UK the latest CBI reported sales numbers for February are due out and will be of particular interest in light of January’s blow out official retail sales numbers, which caught out pretty much every analyst in the UK. Expectations are for an improvement in line with last week’s CBU data with an improvement from -22 in January to -12.
In the US the latest durable goods numbers for January are expected to improve slightly from December’s 3% fall but are still expected to decline 1%. Investors will also be hoping for a pick up in consumer confidence for February, after January’s unexpected fall to 61.1 caught the market unawares, with an improvement to 63 expected.
EURUSD – yesterday’s slide lower by the single currency could signal the end of the current rally with a tweezers top at 1.3480 and a potential dark cloud cover daily candle reversal. Above 1.3490 negates the pattern and argues 1.3630.
Any move lower needs to hold above support between 1.3300 and 1.3320 which had until recently been a solid top, for a bounce back towards this week’s highs. Only a move back below here argues for a move back down to 1.3180, and then the 1.3000 level.
GBPUSD – another failure at the 200 day MA at 1.5905 has seen the cable slide back lower again. This remains the key barrier to any further gains and it needs a close beyond here to target a move towards 1.6080. Also the previous reaction high remains a key level at 1.5935.
Pullbacks should fund support around 1.5820 and 1.5720 while the 55 day MA at 1.5620 remains a key support along with the February lows at 1.5645.
EURGBP –the 0.8500 level continues to hold back the current rebound as the single currency starts to lose some momentum. If we get through 0.8500 then a spill over to 0.8550 cannot be ruled out which is 38.2% retracement of the 0.9085/0.8220 down move.
The recent range highs at 0.8420/30 should now act as significant support on the downside Only a move below the 0.8400 level and previous highs opens up a retest of the old pivot at 0.8340, while a move below that retargets the 0.8270/80 range lows.
USDJPY – the US dollar after making an 8 month high at 81.62 slipped back sharply touching 80.05 before rebounding.
The 82.85 area remains the next target being the 38.2% retracement of the entire down move from the 95.00 highs to the all time lows at 75.30.
We could get a pullback to 79.20 without damaging the current upward momentum but we need to see a close above the weekly Ichimoku cloud resistance at 81.00 to reinforce the case for further gains.
Below 79.20 argues for a deeper move towards the 78.20 level, and undermines the bullish scenario.