Talking Forex Weekly Outlook: April 16, 2012

The never ending eurozone sovereign debt crisis is set to remain a central theme this week as market participants await with anticipation the outcome of the upcoming note auction from the troubled Iberian Peninsula. Spanish funding stress in turn weighed on the domestic equity index Ibex which traded near its March 2009 lows. In addition to that, the country’s CDS are at record wide levels, while EU’s volatility index traded at around 30% mark.

On a separate note, the CFTC said the net EUR short position was USD 16.6bln, an increase of 26% from the previous week. In terms of technical levels, supports are seen at 1.3067 (Apr-11 low), followed by 1.3033 (Apr-9 low) and then at the 21-Day Lower Bollinger Level at 1.3022. On the other hand, resistance levels are seen at the 10DMA line at 1.3143 and then at the 55DMA line at 1.3205.

GBP/USD

While the affirmation of the UK’s AAA credit rating by the S&P should provide a degree of support to the currency, the pair is set to remain a by-product of investor outlook for the peripheral eurozone which continues to struggle to contain the crisis. Still, S&P said the UK has a wealthy and diversified economy, but that the country’s rating could be cut should the pace and extent of its fiscal consolidation slow beyond the current expectation.

Following the S&P announcement, UK Chancellor Osborne said it was a reminder that the UK is weathering a “debt storm.” In terms of technical levels, supports are seen at the 55DMA line at 1.5844, followed by 1.5808 (Apr-10 low) and then at 1.5801 (Mar-26 low). On the other hand, resistance levels are seen at 1.5985 (Apr-12 high) and then at the 21-Day Upper Bollinger Level at 1.6015.

USD/JPY

The report by the CFTC late last Friday indicated that the net JPY short positions stood at USD 10.2bln, which is an increase of 4% and the largest net short position since June 2007. Still, further deterioration of the debt crisis in Europe risks prompting an unwind short positions, which in turn can trigger another round of speculation that the BoJ will intervene to weaken the currency.