Today marks the beginning of the G20 meeting in Cannes, France and most investors are watchful for any comments that will be made relating to the latest developments in Greece. This is being taken alongside a smaller meeting between Eurozone officials to discuss the potential implications of the referendum vote that is scheduled for the Greek parliament later this week.
The fact that another vote is happening at all has led to some speculation that Greece is considering taking an exit from the EU and as long as this continues, volatility in the EUR/USD should remain elevated. Because of this, the specific language seen in the referendum will be heavily scrutinized and its release it a key event risk going forward.
In the US, the main event was the FOMC policy meeting (and accompanying statement) but this offered little in the way of guidance for markets as there was no mention of new policy strategy and the Fed’s bias toward low interest rates (until the middle of 2013) was reiterated. Markets could have gleaned some optimism if we had seen some suggestion of quantitative easing in the policy statement but when this did not materialize, equity markets sold off and the US Dollar pushed higher.
The vote for another round of QE stimulus was seen at 9-1 (with the Chicago Fed President calling for additional stimulus). The Fed’s GDP forecasts were also revised lowed with 2011 GDP now seen rising by 1.7% (previous forecasts called for a rise of 2.7%). Inflation forecasts held steady, and this is seen as supportive for the Fed’s overall view of future interest rate increases.
Ahead today, the main event risk will be the ECB monetary policy decision and the following press conference will be viewed as significant as this is the first meeting headed by the new ECB President (Draghi). If the ECB does choose to lower interest rates, the overall reaction in the Euro could be extreme. Markets will pay special attention to his comments as a means for gaining guidance from the central bank’s general tone in relation to the current sovereign debt situation.
The EUR/USD is coming into support at the 1.3640 double bottom, after having broken a variety of technical supports in its latest move. Indicators are firmly in negative territory, so a break of current levels will first target a move back to the 61.8% Fib retracement on the 4H charts. This area comes in at 1.3570 and a break here would be very ominous in the longer term. Resistance is now seen very strong at 1.3820.
The DAX continues its drop to its current test of the historical support level at 5760. The failure well ahead of the 61.8% daily Fib retracement makes the structure look weak for the longer term and with little bounce seen at current levels, a break looks imminent. Longer term the key resistance to watch comes in at 6445 and a break here should accelerate gains. A downside break, however, targets 5630.