EUR/USD
Weakness towards 1.4127 is expected following the setback off Friday's 1.4339 high. However, last week's low at 1.4073 looks secure for now, and only a sustained break below 1.4127 would bring the 1.4073 low back into focus. A recovery above 1.4299 is required to prompt a recovery back to the 1.4339 high, threatening 1.4350 and 1.4384.
GBP/USD
Across-board GBP weakness dominates, leaving last week's low at 1.6079 vulnerable. Last week's push below 1.6218 adds weight to the weak tone, and a break below 1.6079 would expose 1.6057 and 1.5993. However, scope for a deeper setback exists to meet downside targets at 1.5941, 1.5908 and 1.5859 this week. A recovery above 1.6194 is required to provide respite, but only a move above projected resistance at 1.6301 would concern GBP bears.
USD/JPY
The sharpness of the setback off 81.08 suggests the June 8 reaction low at 79.69 is at risk. Last week's bear hammer candle puts USD bears in control, and a break below 79.97 is threatened, bringing the 79.69 low back into the picture. A retest of the 79.69 low would also threaten to create longer-term scope for the 78.54 area. Resistance at 80.48 has become pivotal for the short term, which is protected by 80.30.
AUD/USD
The setback off 1.0635 brings last week's low at 1.0478 back into the picture. The short-term AUD bear trend is still intact, and a break below 1.0478 would expose the May 25 reaction low at 1.0441. However, a break below 1.0478 would also create room for weakness to the 1.0304/1.0327 support cluster. A recovery above 1.0607 is required to provide respite, but only a sustained break above 1.0635 would question the bearish AUD outlook.
Forex Focus
The euro is once again under pressure as the impasse over the Greek debt crisis continues, putting even greater importance on key decisions within and outside the country for the path of the single currency. Investors are still holding out for Greece's funding problems to be resolved, a factor which is shoring up the currency. But expectations that crisis negotiations over the weekend would yield a firm solution were dashed. Instead, European Union authorities have put off the decision, hoping for a mid-July end to protracted talks. The euro succumbed to an early bout of selling Monday, slipping to a session low of $1.4191 against the dollar before coming back above $1.42. But while the outlook for the currency looks uncertain, the prevailing sentiment is still relatively sanguine. Most investors are betting that there is too much at stake for the euro zone as a whole to let Greece default on its loans. Athanasios Vamvakidis, a currencies strategist at Bank of America Merrill Lynch, said the cost of allowing Greece to fail is too high, which should in the end help support the euro. "The baseline is we expect a 'V shape' for the euro's exchange rate versus the dollar."
Europe
A serious break for the dollar under Y80 is more likely now. For weeks, the U.S. and Japanese currencies have traded in a narrow range against each other, trapped on one side by optimism over a U.S. recovery and limited on the other by fears of Bank of Japan intervention. However, both of these key factors could be changing. In the case of the U.S. recovery, recent economic data show that the upturn is proving much more gradual than expected and that the chances of the Fed starting to tighten policy have receded rapidly. If anything, the Fed is expected to confirm at its latest policy meeting on Wednesday that, although QE2 has formally ended this month, the central bank will maintain the current level of liquidity by reinvesting its maturing bond purchases. For the moment, the Fed is denying any suggestion that it is entertaining another dose of quantitative easing, or QE3, but recent data showing that the economy is stalling in the middle of 2011 very much as it did in the middle of 2010, means that talk of further easing will increase. This is coinciding with more evidence that Japan is recovering from the ill-effects of its devastating earthquake and tsunami in the middle of March much more rapidly than anticipated. The Japanese government acknowledged this by raising its review of the economy for the first time in four months. Even initially disappointing trade numbers, showing a further widening in the county's trade deficit, could be read as helpful as imports rose 2.4% on the month, indicating that domestic demand continues to improve.
Asia
The euro was lower in Asian trading Monday, weighed by continuing uncertainties over the Greek political situation and the potential scope of private-sector participation in an additional Greek aid package. Euro-zone finance ministers said early Monday morning they had narrowed their differences over how to get Greece's private-sector creditors to contribute to the country's financing in the coming years. In Athens, Prime Minister George Papandreou is facing a vote of confidence Tuesday as he seeks a new financial aid package and pushes for additional austerity measures in his country. Papandreou's Socialists hold just a five-seat majority in the 300-member parliament and some Greeks are rebelling against their leaders' determination to press the searing budget cuts that are the price of their rescue. "It remains unclear how local politics will play out in the Greek debt problem," said Tomohiro Nishida, senior dealer at Chuo Mitsui Trust and Banking. "There are expectations for an early settlement for a new aid package, but there are also concerns that are weighing." Euro-zone finance ministers early Monday left crucial details unresolved, most importantly how to get creditors to participate without causing a Greek sovereign default, although they said they had narrowed their differences over private-sector contribution. The ministers said they aim to have a final plan in place by early July. Market participants continue to closely watch any further developments in the Greek financial assistance, Tokyo dealers said.
World
Revived hopes for a resolution to Greece's debt crisis sent the euro higher Friday in New York, as investors bet finance ministers would wrangle a bailout in weekend meetings. But risks abound that the debt contagion may spread, as underscored by a rating agency warning about the zone's third-largest economy on Friday. The euro pared some gains after Moody's Investors Service put Italy's credit ratings on review for a downgrade. The uncertainty emanating from the euro-zone debt crisis is a risk to Italy, a Moody's analyst told Dow Jones in an interview. "While Greece has been dominating the headlines for some time now, the extent of Europe's sovereign crisis goes well beyond the periphery and could potentially disrupt some of the core economies as well," said Omer Esiner, chief market analyst with Commonw
