Interesting turn of events in Europe. Officials from European Central Bank are scheduled to visit Athens to discus financial difficulties facing Greece. This country has been in the news ever since sovereign debt rating has been lowered late last year on fears of default. At that time ECB signaled that would stand by Greece, in the event of deteriorating conditions. Also, new domestic budget, which supposedly was to be much more balanced and with reduced deficit, deflated uncertainty to some degree. These fears returned today on comments from one of ECB executive board member that bailout would not happen.

That clearly was a surprise, but didn’t cause too much of a panic in currencies. Euro spiked down, but has since reversed and remains relatively strong for the day. I think nobody really believes that EU would allow one of the member states to fall into financial chaos. These kind of comments are probably meant to send message to other countries, as well as Greece, to be more financially prudent and responsible. We will learn more in a few days once the meeting in Athens is under way. Greece could forced to trim budget even more and some interim conflicting statements are almost certain to emerge, but over all nothing truly shocking should happen.

Meanwhile, Bank of Japan must be happy today. After a spur of strength to start the year with, the Yen registered steep sell off, as if to continue the trend set in late December. Japanese officials have been expressing displeasure with strong JPY for some time, even hinting about intervention. Today’s movement should be pleasing for them. This reversal was very easy to spot, shorter term charts built very distinct bottom. No-brainer trade, of sorts, even for crosses lagging behind, like GBP-JPY. Nice base was created at 147.15 or so, setting up good short term trade.

For me it turned out to be 60 pips gain. Other, stronger crosses could have done even better. Especially AUD-JPY, with Australian Dollar on fire. I think this pair could be a key to JPY immediate future, or rather its strength. Pair is approaching important resistance level on daily chart, at about 85.35. If it goes through, other crosses are likely to follow. Failure to penetrate could provide selling opportunities in all yen pairs. This should be decided soon.

Another high flier has been Canadian Dollar. Its strength continues for now, even though it is lagging behind AUD at the moment. This could be first sign of broader intermediate pull back. Not a done deal, by any means, but Loonie is not advancing as fast as it has been. Short term counter-moves started to get sharp and relatively big, which often indicates first signs more important reversal ahead. Like this jittery movement in GBP-CAD.

This pair had 500 pips run up, only to make new lows today, couple of hours ago. Chances are good for a good size bounce from here. I want to see strong bullish reversal  in this general area for an entry. It could result in a move to 1.6800 with secondary objective at 1.7000. I’d like to see it happen over next 24 hours. Any clean break to the downside on enlarged bearish candle would negate it. In this case zooming in to 1H chart and looking for upside breakouts will be a better course of action. For now, checking this chart every 4H looking for bullish candle is the plan.

Mike K.