Talking Forex Weekly Wrap - 02/03/12

EUR/USD
 
The pair finished the week with a net loss of around 300pips after G-20 ministers pressed on Germany to boost the size of the bailout rescue fund, noting that the move would be "essential" to a decision by non-European countries to raise more resources for the IMF. While the latest 3-yr LTRO came in close to consensus at EUR 530bln, with 800 banks submitting bids; which compares to EUR 489bln and 523 banks back in December. The excessive use of funds indicates that banks continue to re-fund, however it is also likely that portion of the borrowed money will be reinvested into sovereign debt auctions. As a result, the 1-month at-the-money (ATM) volatility gained over 5%, while the benchmark 1-month 25-delta risk-reversal (RR) advanced over 50%. In terms of news flow, S&P lowered its rating on Greece to SD (from CC), while the ECB said that it will no longer accept Greek debt as collateral until there are collateral enhancements in place. In addition to that, even though Portugal's finance minister announced the country has passed its 3rd bailout review by the EU/IMF, this did not stop S&P's Kraemer saying that if there is a probability of default, it is higher in Portugal than in any other Euro-Zone country. In terms of technical levels, supports are seen at 1.3186 (Feb 21 low), followed by 1.3115 (Feb 17 low) and then at the 55DMA line at 1.3066. On the other hand, resistance levels are seen at 1.3300/33 and then at 1.3357 (Mar-1 high).
 
GBP/USD

The pair finished the week little changed and settled in the mid-1.5800 region as market participants remained wary of risks stemming from the never-ending Eurozone debt crisis. Of note, this week saw the release of somewhat encouraging housing data, while the MPC Weale, stated that there was ‘not likely to be a further case’ for more QE upon completion of the recently announced asset purchase program. Of note, according to Nationwide’s Chief Economist, measures of activity in the housing market have picked up, with the number of housing transactions rising by 23% year-on-year in January and the number of UK mortgage approvals was up 36%. However, it remains to be seen whether this trend will be sustained. In the options market, the benchmark 1-m ATM advanced 7% to 7.44, while technical supports are noted at the 10DMA line at 1.5847, followed by 1.5801 (Feb 28 low). On the other hand, resistance levels are seen at the 30Day Upper Bollinger Level at 1.5970, followed by 1.5993 (Feb-29 and 2012 high).
 
USD/JPY
 
The pair posted a modest gain of around 50pips this week and settled in the mid-81.00 region as market participants continued to fret over the debt swap process in Greece. As a result, the USD index was up 1.25% on the week by the closing stages of trade on Friday. In terms of Japan specific commentary, Finance Minister Azumi has reiterated his stance to the G20 that Japan will take decisive steps as needed on the JPY. In terms of technical levels, supports are seen at 81.40/09. On the other hand, resistance levels are seen at 81.77, 82.09 and then at 82.23.