What Does a Greek Haircut Really Look Like?

Having woken to the news that China had a stronger GDP print (even though it was still slowing) meant that I walked into the office to see the USD getting bashed lower across the board with  renewed impetus. It was understandable given the recent mindset of the market, but it did little to make a rather muddy market outlook any clearer. Crosses like the Cable and EUR/USD were climbing with vigour and simply ended up retesting the nearest and most obvious upside resistance levels. For those (like myself) still overall bullish on the USD it did appear to be an opportunity to pick up some at relatively cheap rates. Sure enough as the euphoria of better ZEW and other European data prints dissipated through the course of the European session, we saw the USD stage a comeback, while US equities stayed flat for almost the entire trading session in NY.

Walking in this morning however, we’re almost faced with the opposite scenario. The USD is bid early doors as the market comes to its sense and now turns its attention to the impending Greek haircut. The size of which, conditions and outcomes are what is going to drive this market now. Bottom line, we are going to see a default, in fact we’re already there, the only real issue now is the way in which this is reported to the market and the conditions under which this is accepted. Last word on the street was referring to a 68% haircut, and in my mind where there’s 68% there is also 100%, if you get where I’m going with this. The concept of a PSI deal (another useless acronym) under present circumstances is farcical. Who in their right mind is prepared to take nothing? I won’t continue down this road for now (there will be another perhaps comical piece later today).

Looking at today’s market, the black cloud hanging over heads of traders remains the Greek deal details and with all parties coming back to the table today after hitting the wall over the weekend we will no doubt have more vague headlines driving this market. Event risks include UK unemployment data which couple with decent bids in EURGBP at 0.8300 could keep the Cable a little better bid until about lunchtime. Elsewhere during the day we have US PSI data and the BoC monetary policy statement on the back of a no change in rates yesterday (accompanied with perhaps a slightly less dovish brief comment).

With regard levels for the major crosses rather than telling you how to play them, I’ll just list them today...

EUR/USD: The topside line in the sand remains 1.2830, stops have built up in size above there and a squeeze is imminent. Range players have been sellers into that level and have been taking them back in the 1.2750/30 area, flipping and starting all over again.

GBPUSD: The Cable has formed a nice short term base around the 1.5280/5330 area, while the upside has been hitting the wall around the 1.5400/10 zone. A tightening range no doubt, but for the time being and in respect of what I’ve written above, the upside for this pair looks like it could be the way forward in the short term.

AUD/USD: Of course the little battler took flight on the back of Chinese data and has since come back, but having made such a positive run in recent days it now probably needs another look and consolidation into that 1.0450/80 level, before it really starts to turn lower. Having based in that 1.0330/50 area, intraday bids still sit on dips looking for more upside breaks.

USD/CAD: This pair is in danger (yet again) of becoming another paint dryer, however after various rumbles to the downside in the last 24/36 hours, the move higher seems constructive and the market now awaits the Bank of Canada policy statement this afternoon. Looking at it 1.0120/30 bases for the time being, while a break and close above 1.0180/0230 is needed for more upside confirmation.

GBP/CAD: While it’s done little in recent days, price action continues to look constructive. It’s basing around the 1.5550/80 levels and now needs another sustained attack/break and close above the 1.5700 level to prove its worth in the near term.