EUR/USD
The 1.4600 level is within striking distance, as EUR bulls look to maintain their dominance. While projected support at 1.4492 limits the scope for corrective weakness, the main threat is for a push into fresh four-week highs above 1.4580, opening 1.4600 and two wave equality targets at 1.4664 and 1.4672. Only a push below 1.4456 would concern EUR bulls, exposing Friday's low at 1.4436.
GBP/USD
The recent consolidation phase between 1.5974 and 1.6117 is likely to be resolved to the upside. GBP bull pressure is building on Friday's high at 1.6095, and a push higher is threatened, opening 1.6117 and 1.6192. Failure to force a break through 1.6095 would extend the consolidation phase, and prompt weakness towards 1.5974/87.
USD/JPY
Weakness towards 80.64 is expected, following the sharp setback off 81.15. A large bull pennant continuation pattern is being formed on the 60-minute chart, suggesting there is scope for further weakness towards 80.50 and projected support at 80.38, protecting the pennant low at 80.26. Regaining ground above 80.94 is required to lift the tone, and re-open Friday's high at 81.15.
AUD/USD
The probe above 1.0776 paves the way for more AUD gains towards 1.0867 and the May 11 lower high at 1.0890. Last week's strength completed an eight-week bull wedge, and a sustained break above 1.0776 would attract a fresh wave of gains that have the May 2 reaction high at 1.1014 as a longer-term target. Corrective weakness will attract support while above 1.0620, but downside risk is limited.
FOREX FOCUS
Is the Swedish krona becoming the new Swiss franc? One of the more remarkable moves over the past few days as Greece agreed to take its austerity medicine and tensions in financial markets started to ease has been a shift out of that traditional safe haven, the Swiss franc, in favor of that far more niche Scandinavian, the Swedish krona. On the surface, this certainly looks plausible. International investors are willing to take on more risk and the Swedish economy certainly looks like a good bet. Its recent recovery has been strong and the Riksbank is poised to raise interest rates again on July 5. By comparison, the Swiss economy has been showing signs of stalling and any plans for the Swiss National Bank to raise its interest rates have been put into abeyance. So, the argument runs, with global risk sentiment recovering there is no need to keep your money in the lower-yielding franc after all. But there are at least two reasons why this argument is flawed. First, the recovery in global risk sentiment will probably prove to be limited. Greece may have said it will swallow its austerity medicine but its lenders are still having a lot of trouble convincing each other how to provide a bailout that doesn't look like a default. As a result, the risk of contagion to other euro-zone peripherals remains high and support for the euro itself has hardly been overwhelming. Hopes that the U.S. recovery is picking up steam has also contributed to the improved mood in the international investment community. But this too could all evaporate just as easily if new data fail to live up to the expectations of the optimists. All that aside, Sweden itself is providing reasons for players who are jumping on the krona bandwagon to be cautious. Like Switzerland, Sweden is a highly open economy, dependent on export growth to keep its recovery going. So, just like Switzerland, Sweden is finding that the recent stumble in global demand is taking its toll. On Friday, Switzerland discovered that industrial activity was slowing even more than expected, with the country's latest purchasing managers' index tumbling to 53.4 from 59.2. The problem is that similar data from Sweden were just about as bad. Its index fell to 52.9 from 56.1, taking it well below the long-term average of 55 and bringing warnings from economists that industrial activity could be contracting, with the PMI index under 50, by the autumn. Therefore, what has looked as an attractive "risk-on" trade for investors relaxing over Greece could well start to look more like a short-term end-month, end-half-year play that will unwind again in the Swiss franc's favor as the second half of the year gets underway.
EUROPE
The euro steadied against the dollar in European hours Monday, holding above $1.45 as some of the fresh Greek angst generated by Standard & Poor's Corp. faded and traders looked ahead to a possible euro-zone interest rate rise. Standard & Poor's had warned that a debt rollover plan for Greece could amount to a default, spooking currency markets in Asian hours. But the effect was fleeting, with activity slowing and U.S. markets set to remain shut due to a public holiday. Adrian Schmidt, a currencies strategist at Lloyds Bank, said the opinion of rating agencies was less of a factor for now. "It (the S&P's warning) remains a headwind, but there is some uncertainty about rating agencies' treatment of any deal," he said. Separately, he believes a summer lull might be at hand as the vacation season starts in earnest. That was echoed by analysts at Citigroup who are advising their clients to bet on recent ranges holding, with a so-called double no-touch option that pays out as long as the euro holds between $1.5132 and $1.3868. "We intend to hold this position for a minimum of one month. However, at some point between the one month mark and the expiry (Oct 3)...we may close all or part of the trade if it is profitable," they said in a note Monday. Separately, the euro is also being propped up by expectations that the European Central Bank will lift interest rates Thursday. ECB chief Jean-Claude Trichet has flagged a rate increase by using the code words "strong vigilance" several times ahead of the rate decision. Over in the UK, the pound reacted little to news that activity in the U.K. construction sector grew at a slower pace in June. The U.K. construction purchasing managers' index fell to 53.6 from 54.0, survey compiler Markit Economics said. Schmidt at Lloyds said sterling is being propped up as investors pare back overly negative views on the currency's outlook.
ASIA
The euro fell against its counterparts in Asia on Monday after Standard & Poor's Ratings Services warned that a debt rollover plan for Greece could amount to a default, though traders said the common currency will remain supported by expectations that the European Central Bank will hike rates this week. In remarks released Monday afternoon in Tokyo, S&P said the rollover plan, a leading proposal for easing repayment terms on Greece's sovereign debt, would constitute a default under the ratings firm's criteria. The notice from S&P didn't alter Greece's rating, which remains at CCC after a June 13 downgrade. The euro had been up against its rivals before the remarks, but quickly relinquished its gains, dropping around 40 pips to fresh intraday lows at $1.4510 and Y117.12. The falls came amid thin trade that was expected to dry up even further later in the global day due to the U.S. July 4 holiday, dealers said. S&P's warning echoed views already heard in the market, so likely did not present a longer term threat to the common currency, they said. "This should be about it for the fall, as there's nothing really new in this statement," said Satoshi Okagawa, a senior FX dealer at Sumitomo Mitsui Banking Corporation. Traders said the euro has a positive bias this week ahead of the ECB meeting Thursday, at which the central bank is widely expected to raise its key policy rate to 1.50% from 1.25%. "The question now is whether the ECB will just raise rates this time and then hold, or whether inflation data will keep the pressure on for continued rate hikes," said Motonari Ogawa, a senior FX dealer at Barclays Bank.
WORLD
Surprising strength in the U.S. manufacturing sector supported the dollar against most major currencies Friday, but the euro held its ground as fears surrounding Greece's debt crisis ebbed. The Institute for Supply Management's June manufacturing index came in at 55.3, above the 51.8 forecast. This was its 23rd consecutive month of growth. The figure underscored how a weak dollar--which has only just recovered from a near three-year low it hit in May--has helped exports soar. Yet the global economic outlook remains uncertain. With jitters about Greece's debt crisis retreating to the background, investors are becoming more concerned about the pitched battle being waged in Washington over the $14.3 trillion debt ceiling and the yawning fiscal deficit. Analysts are warning about the repercussions to the global economy if a deal isn't reached by Aug. 2, which may trigger an unprecedented default on U.S. debt. Greece "is gone but not forgotten, [and] for the most part we are focused on the debt ceiling," said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global. "Given that we don't have resolution on the debt ceiling, it's going to be hard for the dollar to rally on good data." Thin markets ahead of the July Fourth U.S. holiday made for sluggish trading. Most market participants were looking ahead to next week's full calendar of economic data, which include readings on the services sector and June payrolls. Late Friday, the euro was at $1.4531 from $1.4503 late Thursday, according to EBS via CQG. The dollar was at Y80.80 from Y80.56, while the euro was at Y117.47 from Y116.81. The U.K. pound was at $1.6085 from $1.6051. The dollar was at CHF0.8452 from CHF0.8407.
