Attention in Athens shifting to politics: Fed & Eco data key - weekly outlook

Last week, the world saw an end to a volatile week with Euro falling after the news of positive US job data and gold bouncing back after hitting a 21/2-month low of $1666.50. The moves were largely driven by key global events that kept on shifting investor/trader sentiments.
China, which has been showing an upward economic trajectory for the last two decades with a 9-10 percent growth rate, hinted for the first time that it cannot maintain its growth momentum. Chinese Premier Wen declared a 7.5 percent growth outlook for 2012.
In couple of other developments, BoE & ECB kept their rates unchanged. ECB boss Mario Draghi, in his statement, said interest rate or another LTRO was not discussed during the ECB session; but he showed his concern about rising oil prices, which is an inflationary trend. The long-awaited Greece's private sector bond holders swap deal has so far reached 83.5 percent, which means that if the take-up rate reaches 90 percent, the legal requirement to force the remaining bondholders could be avoided. Greece's bond swap is a pre-condition to get bailout funds. Athens is now very close to secure the 2nd bailout deal, which is nearing finalisation.
The conclusion of deal will further reduce the risk of a contagion effect in the euro-zone, which requires endorsement from the IMF and the European finance ministers that may not pose any difficulty. But the real challenge will be known when the new government after elections will be required to face a formidable task of meeting its fiscal and structural reform targets. Once the debt swap is completed on April 12, when a smaller tranche of bonds worth at least 20 billion euros will be exchanged, Greece can go ahead with elections. The elections are expected to be held on April 29 or on one of the following Sundays. Greece's coalition government led by prime minister Lucas Papademos has a narrow mandate to complete bailout and debt cut talks and then hold elections as soon as possible.
The other key event linked to the Greek swap deal is the triggering of Credit Default Swap (CDS) to meet Collective-Action Clause (CAC) that requires payments to those holding CDS as insurance to insulate themselves against default, which is around USD 3.2 billion. Triggering of CDS is necessary for the sake of its credibility or CDS could become a dead product of the future. The International Swaps and Derivatives Association (ISDA) will decide about the payouts.
There may be optimism across Europe's financial market after settling of Greek swap deal, but the next big thing in pipeline is placement of a firewall. The release of funds for European Stability Mechanism (ESM) and the IMF funding for Europe may not be possible without an effective firewall.
Market concentration will once again tilt towards Fed's Tuesday FOMC which, according to traders/investors, is going to be a routine affair after a strong US job data which reinforced the notion the US economy is gaining traction. But there is other important financial aspect that should not be overlooked as Fed's biggest hurdle is growth.
Last week, a popular US journal reported that the Fed is considering a new type of bond buying programme, so all eyes will be on Fed chairman Bernanke's statement. The biggest challenge faced by the Fed chairman is higher oil prices that may fuel inflation, but creating a conducive environment to boost growth and improve job market through liquidity may be his bigger priority.
Fx & Gold Weekly Outlook March 12-16
GOLD $ 1713.70 = Gold made a fine comeback after hitting the lows twice in a week to break a crucial $ 1705 level convincingly. Buying on dips will be a preferred strategy, as technically the metal should hold and stay above $ 1688. Dips around $ 1700 would be a good opportunity to buy - a break of $ 1722 will encourage for a test of $ 1732. In order to enter a new trading band, it needs to penetrate beyond $ 1752. A break of major support level risk for $ 1665, which is not a favoured move.
EURO @ 1.3122 = This week's news flash emanating from the European region may not have much negative impact on region's currency as CDS triggering and Greece bailout endorsement from the European finance ministers have already been factored in. Healthy US job data may set a strong tone for US Dollar on Monday, but Fed's FOMC on Tuesday and economic data from the G-7 countries will slow down USD's pace and could see some correction. However, a firewall is one big issue. If erected, it can once again weaken sentiment for the European currency.
Euro's first barrier is at 1.3060, but it has major support around 1.3005. I do not expect this level to surrender unless the firewall issue is raised, as a break would risk for 1.2890. On its upward move, Euro needs to clear 1.3175 for 1.3240 and requires a breaking level for 1.3360.
GBP @ 1.5672 = Cable has next major support at 1.5615, only a break of this level risks for 1.5575. However, I support a bounce-back from support level; and it needs to clear 1.5770 for 1.5850.
YEN @ 82.47 = 82.60 target has been met comfortably and now JPY could be heading for the last leg of its big downward rally. Hence, I would like to warn against trying short Japanese currency as it is approaching a crucial level, which is somewhere around 83.65. I will not be surprised to see a 300 pip drop before Yen touches the bottom of the range.
CHF @ 0.9187 = Swiss Franc has strong support around 0.9280 that should hold and only a break here paves way for 0.9350, which is less likely to happen. I favour gains for Swiss currency and if 0.9110 surrenders we could see a test of 0.9020.