1. Review.
Unless something clearly noticeable happens, something like some ECB action or maybe more FED & Central bank swap lines to alleviate potential credit crunch risks we are going to be in a bad situation with regards to Greece noise until the outcome of the election or until valuable polls suggests Greece won't exit
EU markets are at 2012 lows. The US markets not, but they are well below their recent highs.
The interesting thing is that EUR for instance scarcely lost 2% over the last week. Open at 1.2920, means 2% is about 260 pips is 1.2660 = the low. That doesn't compare too bad with AUD and GBP.
The Bundesbank's Dombret said German banks are prepared for any fresh problems in Greece
Trades
Edged AUDUSD, NZDUSD, short USDGBP, AUDUSD
2. Analysis.
"Fundamental analysis"
For a big EUR south move you need EU trouble and US economic growth and normality. If you don't have both, no big euro south side and potential for euro upside due to the structural improvements and the long term USD diversification
Unless there is something substantially and tragically new it is wholly unlikely that EURUSD will move below the January lows (1.26)
Things are going to stay risk off until the Greeks decide on a unity government
The minutes noted that the recovery would have to falter in order for more stimulus to be warranted. Though our base scenario is for no additional QE, this past week’s data showed a slight deterioration in economic activity (in April, retail sales softened, weekly jobless claims showed no sign of improvement, and the Philadelphia Fed index showed contraction for the first time since Sept. 2011)
GBP: . It expects inflation to under-shoot its 2% target in the next two years, which suggests the Bank will keep the door open to more QE (May 22 . GBP CPI (YoY) 3.1% 3.5%) Last week the pound broke its inverse relationship with Gilt yields. In the past few months it has strengthened as Gilt yields have fallen, leading the pound to be called a “safe haven”
| Id | Driver | Comments | Immanency |
| 1 | On-going global recovery | Germany is in good economic shape. EZ growth low. US growth uncertain | Yes |
| 2 | Divergence in FED and BCE monetary policy | FED will be on hold for until 2015; | No |
| 3 | EZ break up | EU dynamic is a longer term dynamic of "putting the structures in place”; Greece exit | Yes |
| 4 | PIIGS | Greece government and Spain banks in focus | Yes |
| 5 | QE3 | Not off the table; PIMCO says yes | Yes |
| 6 | Commodity rise | Falling prices are confirming slowdown | Yes |
"Technical analysis"
The euro managed to recover slightly at the end of last week after dipping below 1.2650 at one stage. The key support level to watch is 1.2624 – the January low. Below here there isn’t much support before 1.20. Although the situation is grave in the Eurozone, the volatility in the options market is not as high as it was in November. This suggests that the markets may be expecting the politicians and the ECB to step in if things get critical.
Constructive for the dollar as the dollar index is trading above the 80.00 level (81.9).. The rally may be running out of steam for now as negative external factors stemming from the Euro zone haven been largely priced in and as domestic concerns keep the prospect of additional Fed stimulus in sight.
Median grid
EURUSD GRID 1.2400-1.3000, south bias (grid change)
USDJPY GRID 76.00-80.00, neutral bias
AUDJPY GRID 76.00-80.00, down bias (grid change)
USDCHF GRID 0.9250-0.8750, up bias (grid change)
| Currency | Short term view(technical) | Long term view (fundamentals) |
| USD | ||
| JPY | ||
| CHF | ||
| EUR |
"Market dynamics”
Considering the sentiment is anti EUR and thus USD positive on "risk off", good US data should further support the USD. Weak US data will probably go unnoticed as long as the focus is stuff like "will the Greek exit be orderly or disorderly".
With expectations of strong action from the BoJ low, the yen is likely to remain firm as traders avoid risky assets . We expect the yen to be range bound.
We think the pound is vulnerable especially against the yen and the Aussie dollar. Weak inflation data could push GBPUSD below 1.6.
We continue to see EURUSD move lower, but we think it will be an incremental decline rather than a prolonged downtrend. 1.26 as strong support.
We lowered our AUDUSD forecasts overnight, taking the 1m down to 1.00 (prev. 1.05) and the 3m to 0.97 (prev. 1.00). The lower currency forecast profile reflects downgraded UBS China growth forecasts as well as our anticipation that risk aversion is likely rise further on the back of continued political paralysis in Greece.
Key events:
Monday: Nothing
Tuesday: GBP CPI y/y 3.1% 3.5%
Wednesday: JPY Overnight Call Rate <0.10% <0.10%
Thursday: CNY HSBC Flash Manufacturing PM, EUR German Ifo Business Climate 109.5 109.9, USD Unemployment Claims 374K 370K
Friday:
Prices and Risk on/off view
| Date | CRB | WTI Oil | Copper | Gold | Silver | SP500 | Tnote | Bunds | VIX |
| 13/05/2012 | 291 | 96.1 | 364 | 1584 | 28.9 | 1353 | 1.83 | 1.51 | 19.9 |
| 20/05/2012 | 290 | 91.4 | 346 | 1591 | 28.7 | 1295 | 1.72 | 1.42 | 25.1 |
| Difference | -0.34% | -4.89% | -4.95% | 0.44% | -0.69% | -4.29% | -6.01% | -5.96% | 26.13% |
| Date | Dollar Index | AUDUSD | USDCHF | USDJPY | EURUSD | AUDJPY | Weekly Risk on/off |
| 06/05/2012 | 80.2 | 1.003 | 0.93 | 79.92 | 1.292 | 80.1 | -5.64 |
| 13/05/2012 | 81.3 | 0.98 | 0.94 | 79 | 1.277 | 77.6 | -12.17 |
| Difference | 1.37% | -2.29% | 1.08% | -1.15% | -1.16% | -3.12% | -115.71% |
RORO (30): -1.8
3. Plan
4. Trades
Positions
USDJPY +2
EURUSD -1
USDCHF 0
AUDJPY +0
EURJPY 0
CADJPY 0
EURAUD +1
4.1 open trades, their type & their value:
Leverage
4.3 Effect of planned trades
Account summary:
Starting capital: 1000
Line in the sand level: 7500
1. Account balance (Settled trades) and growth as a percentage. (10186=+2%)
2. Account equity (Including open positions) . (9951=-1%)
3. Account equity if planned trades go wrong: 0
4. Pip distance to line in the sand level.
0.0042 (+0.32%) 
]
-0.19 (-0.25%)