By Joel Kruger, Technical Strategist for DailyFX.com

• Eurozone leadership needs to step up now
• Impact of Greek exit would be catastrophic
• Currencies oversold and still in need of some corrective action

We have now reached a point where a serious emergence of leadership in the Eurozone is needed. While some would argue that a Greece exit would be best, as it would rid the rest of the Eurozone from having to deal with the Greek financial crisis, we contend that a Greek exit would be catastrophic, as it would only open the door for exits by other ailing economies within the Eurozone. It is true that in the grand scheme, Greece is a rather small threat to the broader economy, but if investors started to expect such exits from other countries as a result, this would truly be an unwelcome development which would significantly undermine the Euro’s prospects.

As such, we feel that the proper response, in the interests of stability, is for Eurozone leadership to act fast and make the necessary commitment to ensure that they will be there through the worst of times, despite the costs associated with such a commitment. It is easy to stay loyal and show commitment when it is not needed, but it is in times of crisis when one is really tested to step up and back up convictions. Now is the time for European leadership to step up and swallow whatever necessary to keep the local and global economy from slipping deeper into the abyss. One of the major critiques of the Eurozone is the ability for so many different countries to stand together under one economic umbrella. Clearly this is now being tested, and the only way to respond, is through a unified commitment at whatever the cost.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market remains under intense pressure and the focus for now is squarely on a retest of the 2012 lows from January at 1.2625. While we would not rule out a possibility of a test of this level over the coming sessions, short-term technical studies are well oversold and are showing a need for some form of a corrective bounce from where a fresh lower top is sought out. Ultimately however, any rallies should now be very well capped by previous support turned resistance at 1.3000 in favor of additional weakness over the medium-term that projects deeper setbacks into the lower 1.2000′s.

USD/JPY: The market continues to consolidate around 80.00 and is in the process of looking for a medium-term higher low ahead of the next major upside extension back above the yearly highs at 84.20 and towards 90.00 further up. However, for the time being it remains in question whether the market will still head lower towards the 200-Day SMA by 78.50 before ultimately reversing higher. The key level to watch above comes in by 80.60, and a break and close above this level will officially alleviate downside pressures and suggest that a higher low has now been carved in the 79.00′s.

GBP/USD: The latest daily close below 1.6050 now opens the door for an acceleration of declines over the coming days back down towards next key support in the 1.5800′s. At this point, look for any intraday rallies to be very well capped ahead of 1.6200, while only back above 1.6300 would negate outlook and give reason for pause.

USD/CHF: Overall the structure remains highly constructive and we continue to project additional upside over the coming months back above parity. For now, the latest break and close above 0.9335 is expected to accelerate gains for a retest of the yearly highs by 0.9600, while any intraday pullbacks should be very well supported ahead of 0.9200. Ultimately, only back under 0.9000 would negate outlook and give reason for pause.

— Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

By Joel Kruger, Technical Strategist for DailyFX.com

• Panic, fear and uncertainty take hold of markets
• Euro looking to establish below 2012 lows from January
• Yen starts to find renewed bids on flight to safety status
• Eurozone political turmoil fuels intensified risk off trade
• Rating agency downgrades and Greek political developments weigh

The risk liquidation continues into Friday, and markets to this point have shown no real interest in any form of a bounce. The US Dollar and Yen have been the prime beneficiaries on their flight to safety status, while the Swiss Franc is still not participating given the aggressive SNB intervention measures. We wonder how much it is costing the SNB to keep the EUR/CHF cross propped above 1.2000, especially in these intense risk-off markets. At this point, the Euro should accelerate to test the yearly lows from January by 1.2625, although any additional declines from there would be hard to comprehend in light of the severely oversold daily technical studies.

Elsewhere, US equities are now testing some key support levels, while gold has finally found some bids ahead of $1500. It certainly isn’t common to see so many analysts bearish on the Euro and risk in general. We have seen even the most aggressive Euro bulls retract their positions, and these include some larger banks, hedge funds and even central banks.

Moving on, Moody’s downgrade of 16 Spanish banks, along with Spanish yields rising back above 6% has not helped matters, while comments from Greek SYRIZA leader Tsipras that his party will not join the any pro-bailout coalition only weighs further on risk sentiment. European leadership needs to step up and offer a solution; otherwise, we could see additional risk liquidation over the coming hours. It is more than likely that the burden will fall on the European Central Bank, and the introduction of a Eurobond or additional bond buying could offer some relief. Other tools at the ECB’s disposal include the LTRO and the ability to cut rates, both of which would also likely be viewed as a risk positive. One thing is for sure, the G8 Summit kicks off today and we should expect nothing from this front in terms of any helpful solutions.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market remains under intense pressure and the focus for now is squarely on a retest of the 2012 lows from January at 1.2625. While we would not rule out a possibility of a test of this level over the coming sessions, short-term technical studies are well oversold and are showing a need for some form of a corrective bounce from where a fresh lower top is sought out. Ultimately however, any rallies should now be very well capped by previous support turned resistance at 1.3000 in favor of additional weakness over the medium-term that projects deeper setbacks into the lower 1.2000′s.

USD/JPY: The market continues to consolidate around 80.00 and is in the process of looking for a medium-term higher low ahead of the next major upside extension back above the yearly highs at 84.20 and towards 90.00 further up. However, for the time being it remains in question whether the market will still head lower towards the 200-Day SMA by 78.50 before ultimately reversing higher. The key level to watch above comes in by 80.60, and a break and close above this level will officially alleviate downside pressures and suggest that a higher low has now been carved in the 79.00′s.

GBP/USD: The market remains under intense pressure since breaking back below 1.6000 and setbacks could now extend towards next key support in he 1.5600 area over the coming sessions. Still, daily studies are now stretched and we would prefer looking to sell into rallies towards 1.5900 where a fresh lower top is sought out.

USD/CHF: Overall the structure remains highly constructive and we continue to project additional upside over the coming months back above parity. For now, the latest break and close above 0.9335 is expected to accelerate gains for a retest of the yearly highs by 0.9600, while any intraday pullbacks should be very well supported ahead of 0.9200. Ultimately, only back under 0.9000 would negate outlook and give reason for pause.

— Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

This week I had three trades which opened, one closed and the other two remain active and profitable (although this could easily change Monday morning!). The EURCAD trade triggered my short entry stop, however, as with most Loonie trades it doesn’t usually like staying comfortable in one direction for too long! While the trade quickly moved to break even there was an opportunity to exit the trade due to the large hammer formed at 1.2800. The reversal wasn’t taken and subsequently the EURCAD rallied for the remainder of the week.

In my trading emphasis is always placed on looking for significant areas of support / resistance and one form of measure that I like to use is trend lines: the more touches and the the more flatter the trend line the more significant TO ME the area of support / resistance. This equally can be applied to price reversals – what would be considered a significant reversal?

Is it:

• Distance from last trough or peak formed?
• A certain quantity of historical volatility?
• A pattern?
• Time?
• A combination of all these?
• Something else??

Personally I prefer patterns. They seem to crop up time and again and I don’t think it’s coincidence, and the reason for this is that human behaviour doesn’t change. One of these “significant” reversals is a price bar which has several different names applied to it: hammer (formed at troughs), shooting star (formed at peaks), pin bar, wickle (okay I made that last one up). Whatever the name the principle is still the same: price moves strongly in one direction only to have all that movement eclipsed by price reversing moments later.

Another strong price pattern I see is engulfing patterns – with pin bars being the amalgamation of an engulfing pattern in a smaller time frame.

Anyhow, details of the trades for this week have been listed in this short video here:

“Just look at him! there he stands,
With his nasty hair and hands.
See! his nails are never cut;
they are are grim’d as black as soot;
And the sloven , I declare,
Never once comb’d his hair
Any thing to me is sweeter
Than to see Shock-headed Peter “

Team Macro Man, when they were little macro children, were given a book called “Struwwelpeter” which was written in the late 1800s by the German Psychiatrist Heinrich Hoffmann as a set of short stories for children showing the shockingly disastrous consequences of misbehaviour. To some, the book is an anachronistic psychological nightmare to be confined to the Politically Correct incinerator but TMM have always delighted in it, leaving them rounded with fond memories of moral tales with endings that didn’t pussy foot around.

This morning found us once again reading the book to the squeamish delight (note not horror) of our own offspring and as we did so it became abundantly clear that the book should have been made essential reading for all Eurocrats and Greek politicians. The stark Germanic cultural attitude towards transgression from the rules shines through and is as valid today as it was when the book was written.

Rather than us rewriting each story in its modern context we would suggest you fire up THIS copy in another window and read along as you consider the following -

Harriet and the Matches - Obviously the Greeks playing with borrowing and spending, as they have seen their elders and betters do, but ending with Greece as a pile of ashes.

Augustus who wouldn’t have any soup – Greece turning down the bailouts handed to them by Europe and they end up slowly starving to death.

Fidgety Philip – Phillip is so obviously Greek Politics pulling down the dining table of Europe as the Core tell him to behave.

Robert - Investors buying periphery sovereign debt thinking they are protected by CDS and getting carried away never to be seen again?

Johnny Head in the Air – The Eurostriches of European policy reaction with 2011 being the first fall and 2012 the big fall into the canal (hopefully to be fished out by the IMF) all because they couldn’t see and react to what was obviously in front of them.

Cruel Fredrick – Frederick is Germany, forcing austerity on periphery countries only to be bitten by them and confined to bed as the periphery then eat his dinner.

The Man that went out Shooting . – This story involves the hunter who, whilst dozing, finds the hare has stolen the gun and his specs and then goes on to wreck havoc on the Hunter and his home, eventually killing him. Hunter – Germany, hare – periphery, specs and gun – policy?

Finally “Struwwelpeter” himself – Europe.

There are other stories in his book that we will leave you to interpret yourself (the comments column is open for alternatives) but, Heinrich Hoffmann, we thank you. You were either the Nostradamus of European politics or have beautifully illustrated how the current European turmoil boils down to basic childish behaviours that the rest of us that were taught from a very early age are just plain wrong.

The market has now taken out some major resistance by 10,100 to open the door for fresh upside and a bullish continuation over the coming weeks. Next key resistance comes in by the 10,300 area, although, with daily studies now overbought, look for opportunities to buy on dips back towards 10,000 where a fresh higher low is now sought out.

The market has now taken out some major resistance by 10,100 to open the door for fresh upside and a bullish continuation over the coming weeks. Next key resistance comes in by the 10,300 area, although, with daily studies now overbought, look for opportunities to buy on dips back towards 10,000 where a fresh higher low is now sought out.

You know it’s May when-

1) Greece is doing its best to detract holiday makers and you wonder if you should forgo the deposit on your Greek Holiday.
2) David Cameron is crowing about how to run Europe.
3) Your inbox is full of crowing statements from FX banks about how well they’ve done in Euromoney Survey.
4) You live in London and are diagnosed with rickets through lack of sunlight.
5) There is a deafening silence from the Eurostriches. It normally takes until August for them to schedule a meeting for late September.
6) FX spot traders rummage in the drawer for last year’s “what basis swaps are” notes.
7) Analysts just Tippex out and change the year on their research notes, confident that no one ever read them anyway the first time round.
“Sell in May” statistical proofs hit your desk.
9) Your grandmother sends you old cuttings on how to grow your own veg and build an air-raid shelter.
10) EGDF replaces DGDF (see glossary)
11) No one cares about economic data.
12) The BBC question whether Van Rompuy deserves his last year’s bonus.
13) Your P+L looks like the deck of a Japanese whaling ship.
14) Price Is News with “hasn’t been here since [insert last time]” headlines dominating.
15) Despite the end of the world,  someone manages to IPO a grillion $s worth of non-controlling shares in a company that everyone uses for free.
16) High yield pipeline dries up, liquidity dries up, the fund’s credit trader starts punting index / working on his putt / is not in the office.
17) Zerohedge and Hotcopper light up with “why is GDX going down” oriented posts with the comments explaining some conspiracy.
18) Football competitions start to be cited as pivotal market driving events.
19) France and Germany pretend to be best mates.
20) Team Macro Man start leafing through the “situations vacant” column of the local parish magazine.