The Weekly Update: Greece Returns to Haunt the Market

Digital Derivatives MarketsResearch, Weekly Market Analysis

Greece Returns to Haunt the Market

It has a been a while since Greece had a major impact on global markets since the infamous austerity measures that were imposed on the debt-ridden nation. On Monday Greek officials are due meet in Brussels with Troika , European Central Bank (ECB) members and the International Monetary Fund (IMF) to finalize an extension of the current EU bailout package to pay its loan and possibly a new credit line.. As Greek officials believed Greece could easily return to tap the market back in October, the market has showed them otherwise. The Greek 10YR bond yields spiked above 7.5% last Thursday, forcing Greece to  seek a credit line of EUR 10 billion on top of the current EU bailout package. However, as the Christmas holidays draw near it is unlikely to be made available in time.

Troika is demanding more austerity measures in order to close a gap of EUR 2.5 billion that is expected for next year due to Greece’s failure to impose all the necessary austerity measures in the pension reforms and crack down on tax evasions. The tension has increased last week as Troika threatened the Bank of Greece it will cut liquidity to Greek banks unless an agreement is struck before the end of 2014.  We must highlight that according to market sources Greece creditors are willing to provide an extension of up to six months. In regards to the credit line, we are uncertain what the outcome would be.

Another risk even for the Euro zone would be the presidential elections in Greece that are due to take place at the beginning of 2015. The ruling party must have 180 votes in order to secure a victory but only have 155 Members of Parliament (MP’s). Failure to attain 180 votes will force Antonis Samaras, the current Prime Minister,  to head for snap elections where the radical Syriza party may actually grab the votes in our opinion. The Syriza party is against all austerity measures that were imposed on Greece and demand Troika to erase a third of the country’s debt. If Greece will head for snap elections in 2015 (possibly as early as March) risk aversion may dominate the markets. Global indices such as DJ30 and CAC40 are expected to suffer as investors will fear the political tension in Greece could have a devastating effect on global markets. Gold (XAU/USD) may actually benefit from safe-haven flows. The event will be added to EURUSD key market events research should it materialize.

EURUSD Technical Analysis

Bearing in mind the above, we would like to focus on the near-term event which is the extension of the EU package by up to six months, which may be interpreted into intraday gains in EURUSD in the Forex market. For our technical analysis we have selected the monthly chart.

EURUSD Monthly Chart

Please click on the chart to enlarge:

EURUSD Trading STrategy, 8 December, 2014

EURUSD Monthly Chart 08/12/14

EURUSD reaches a firm support level on the monthly chart, which also evident on the weekly chart. Combined with the MACD histogram positive divergence we have discussed last week indicates corrective gains in Euro-Dollar may not be theoretical. Focusing on the broader outlook, should the price post a monthly close below the support line, the bullish outlook would be negated as EURUSD may be targeting 1.1650 by the end of 2015.

We are executing a long trade in EURUSD at market price, protective stop layered at 1.2174, targeting 1.2740.  As the stop loss order is based on the monthly chart  we have no possibility to reduce the stop loss size but rather maintain a decent a Risk-Ratio (RR). Updates regarding our trade alerts will be published at the bottom of this page throughout the week, subscribers will be instantly notified.

CAC40 Technical Analysis

Oppose to EURUSD, the French CAC40 is looking completely bearish on the weekly chart.

CAC40 Weekly Chart

Please click on the chart to enlarge:

CAC40 Technical Analysis, 8 December, 2014

CAC40 Weekly Chart 08/12/14

In July 2014 the price posted a weekly-close below the key support line (in blue), which gave birth to further weakness in the index. At the end of August 2014 the breached support acted as a firm resistance as it was tested by the market bulls, yielder to deeper losses that were contained by the 200-Weekly Moving Average (WMA). Due the August resistance re-test we believe a fresh downtrend may have been established, leaving the CAC40 vulnerable to sell-on-dips strategies. A downtrend is determine by lower highs and lower lows. Current levels is the third lower high, which may suggest moderate weakness is due. We will wait for the European market to open on Monday morning to determine whether we will execute a short trade in the CAC40 based on our trading strategy.

08/12/14 UPDATE: S&P downgraded Italy from BBB to BBB-. EURUSD is trading at 1.2264. The downgrade took us by surprise but we are maintaining our long trade in EURUSD for the reasons we have suggested in our market analysis.

08/12/14 UPDATE II: We are executing a short trade in the CAC40, protective stop layered at 4,454, targeting 4,165. CAC40 is trading at 4,394 at the time of this writing.

08/12/14 UPDATE III: CAC40 may re-test the 4,426 resistance, which would not negate the short trade as the entry is based on the weekly chart.

08/12/14 UPDATE IV: EURUSD is continuing to press lower, currently trading at 1.2250. ECB member Nowtony instigated the selling by commenting the Euro zone is due for an economic downturn.  Our outlook for EURUSD has not been negated. The CAC40 is hovering near our entry, currently at 4,395.

08/12/14 UPDATE V: EURUSD has corrected higher as we anticipated, trading at 1.2320 at the time of this writing. We are closing 15% of the long trade at market price.

The CAC40 is trading at 4,360 at the time of this writing. We are closing 15% of the short trade at market price and shift the protective stop to the entry.

09/12/14 UPDATE: The CAC40 is trading at 4,322 at the time of this writing. We are closing 25% of the short trade at market price. We are not shifting the stop from the entry.

09/12/14 UPDATE II: EURUSD is trading at 1.2361 at the time of this writing. We are closing 20% of the long trade at market price. As the selling in the CAC40 continues (current price is 4,296), we are shifting the protective stop to 4,370.

10/12/14 UPDATE: The market continues to trade in accordance to our trading strategy. EURUSD is trading at 1.2430 at the time of this writing, ensuring the long trade is in approximately +140 pips. We are closing 20% of the long trade at market price and shift the protective stop to 1.2324.

The CAC40 is trading at 4,226 at the time of this writing, +165 points profit at the time of this writing. We are closing 35% of the short trade at market price and shift the protective stop to 4,350.

11/12/14 UPDATE: Please note the second TLTRO will be released today as we clarified in EURUSD key market events research. We are not concerned by the upcoming figure as we have already realized profits and shifted out stops above the entry for both positions.

12/12/14 UPDATE: We are closing CAC40 long trade after missing our take profit my several points (low was 4,169). Current price of the CAC40 is 4,191.

12/12/14 UPDATE II: Although we have already exited the trade, CAC40 has triggered the take profit we have set for the trade. EURUSD is trading at 1.2429. We have executed new trades in AUD.

16/12/14 UPDATE: The first round of the Greece Presidential elections is due tomorrow as it was brought forward several months. We did not expect such an event and we are concerned the Euro may suffer as a result. EURUSD is trading at 1.2458 at the time of this writing. We are closing 35% of the long trade at market price and shift the protective stop to 1.2395.

Last Updated on April 10, 2015