EUR/USD
Weakness towards 1.4287 is the immediate threat, following the setback off Wednesday's Asian session high at 1.4435. However, while projected support at 1.4287 holds, the short-term recovery off 1.4073 remains on track for the 1.4457 target. EUR bulls need to meet the 1.4457 target in order to validate the recovery off 1.4073. Loss of 1.4287 would undermine the positive EUR outlook, exposing Monday's low at 1.4191.
GBP/USD
Consolidates within a relatively tight 1.6167/1.6254 range, as the recovery off 1.6079 pauses for breath. At this stage, an upside resolution is the more likely, opening 1.6301 and threatening more gains to 1.6340 and 1.6440. A sustained break below 1.6167 would put GBP bears in control of the near-term, exposing Monday's low at 1.6109.
USD/JPY
Action has become rangebound between 80.01 and Monday's high at 80.37. However, last week's bear hammer candle puts USD bears in control, and while significant backup resistance lies at 80.48, the main threat is for a return to the lower end of the range. A downside resolution below 80.01 is be favored at this stage, exposing the June 8 reaction low at 79.69, and enhancing the longer-term threat for weakness to the 78.54 area. A recovery above 80.37 would provide temporary respite, but only a sustained break above short-term pivotal resistance at 80.48 would lift the tone, opening 80.67.
AUD/USD
Resistance at 1.0621 is expected to face renewed pressure, as the recovery off 1.0478 has room to extend. A push above 1.0621 would strengthen the 1.0478 low, and prompt further gains to the June 14 high at 1.0717. Only a reversal below 1.0532 would put AUD bears in control, exposing the 1.0478 low.
Forex Focus
Sterling hawks should be a dead, not a dying, breed. It is amazing how long the hawks have lasted as the U.K. has gone through the worst recession in decades and the global economy has continued to suffer convulsions from the global financial crisis. Even now, there are still two hawks on the Bank of England's monetary policy committee voting for higher interest rates. But, like those investors who have been buying the pound on a yield basis, these members are now looking very isolated as U.K. economic growth proves even more feeble than anticipated and U.K. price pressures have shown little sign of taking root. If anything, more evidence of this feeble recovery is likely to come. A pick-up in growth still looks many months away and the recent reversal in commodity prices will continue to extract some of the inflationary pressures many hawks had been worried about. The latest Bank of England minutes went a long way to argue just this point, noting that even the hawks recognized that "the growth outlook during the month had been weak." But, it is the issue of inflation that has really been dividing the hawks from the doves, with the former arguing that with the current 4.5% inflation expected to rise to 5% in the next month or two, price pressures will become entrenched. In other words, the central bank will have fallen behind the policy curve and the country would be left with the damaging legacy of long-term inflation. However, the minutes make it clear that there is little evidence of this. Inflation is not translating into higher wages and as commodity prices subside, the whole price pressure problem should prove transitory. If anything, the bank now suggests that the inflation rate will fall back under the 2% target and stay there. But, even more galling for hawks, has been the talk of more quantitative easing.
Europe
The euro got a fleeting lift Wednesday after embattled Greek prime minister George Papandreou's new cabinet got the required nod, with traders already looking to the next stumbling block in the still-unfolding Greek story while a downbeat pronouncement on the U.K. economy dented sterling. Greek members of parliament must pass stringent measures worth some EUR28 billion before Greece gets a EUR12 billion lifeline from the European Union. Approval must come by June 30 so that Greece is ready for the Eurogroup meeting scheduled for July 3. Much can happen by then. The confidence vote went along party lines as members of Papandreou's Panhellenic Socialist Movement (Pasok) were eager to stave off early elections but they may not be as quick to say 'yes' to the raft of tough measures given widespread public protests in Greece. The euro rose to as high as $1.4435 against the dollar after the parliamentary vote Tuesday, a one-week peak, but has since eased back to a touch under $1.44. While some prophets of doom see widening protests in Greece as a reason to doubt the resolve of Greek lawmakers, there is still a widespread belief in the market that Greece will pull through this battle.
Asia
The euro fell against the dollar and yen in Asia Wednesday as investors bet that European sovereign debt concerns will continue to buffet the common currency, with the Greek government's survival of a confidence vote that should help it avert the immediate worsening of its debt crisis offering only temporary relief. Short-term investors who had bid up the euro Tuesday ahead of the confidence vote in Prime Minister George Papandreou's administration sold the unit after the vote passed early Wednesday in Asia. Investors cashed in quickly on their bets because a longer term fix to Greece's sovereign debt problems remains unclear, dealers said. Dealers said the euro could regain ground later if European share markets follow most Asian bourses higher, and if the U.S. Federal Reserve's policy-making Open Market Committee sounds increasingly dovish at the end of a regular two-day meeting. But the currency likely won't top resistance around $1.4450, they said. It rose only to $1.4435 on a brief surge immediately after the Greek vote.
World
The euro pushed above $1.44 Tuesday in New York on investors' hopes the Greek government could survive intact, helping to contain the country's debt crisis over the near term. The session was fueled by expectations that Prime Minister George Papandreou's new cabinet would survive a confidence vote late in the New York day. "Nothing can be taken for granted in the rarefied atmosphere pervading Greece (riots, mass strikes, etc.), but the omens so far look good," said Willie Williams, director of FX institutional sales at Societe Generale. In addition, with the euro able to close above $1.4390, "[our] technical analysts don't see any key resistance until $1.4590-$1.4600 after that level," another good sign for the increasingly scrutinized common currency, he said. The common currency also was helped by a small sign that indicated Greece's troubles could be contained. Fitch Ratings' co-head of EMEA financial institutions, James Longsdon, said a sovereign default by Greece in isolation might not be a problem for big European banks, although a disorderly, more protracted event could be a different story.
