v USD gains on safe-haven flows despite weak Philly Fed data. v EUR held flat but markets are anticipating a further drop due to contagion fears. v CAD falls as slowing US economy dims outlook.

Since the dovish BoE inflation report and Mervyn King press conference, the sterling has been weak, and the GBP/USD has been sliding sharply. After a brief pause at 1.59, the market fell sharply to 1.58 and is now testing an area of support cluster from 1.5770 to the 1.58 handle. Looking at the daily chart below, the 1.5770 level is 50% retracement of the 2012 rally from 1.5237 to 1.6305.

USD/JPY failed to break above the May high and essentially range resistance at about 80.55. So no returning to 50% retracement at 81.78 for now, especially now that it has falling below 80.00 and even a trendline seen int he 4H chart during the 5/17 US trading session.

The EUR/GBP is not heading to the 0.77 level just yet. Holding above 0.7950, the market is now pushing above 0.80, and looking at the 0.8048 short-term resistance pivot. It should be noted that the 4H RSI reading is testing 60. It has been able to mostly stay below 60, reflecting a persistent downtrend since the beginning of March.

Now the financial world faces the threat of a furious outbreak of the debt crisis in several European nations, starting with Greece, but closely followed by Spain and Italy.
The abrupt departure of more than 700 million euro of Greek banks in the environment causes the fear that the country's financial system will collapse, with unpredictable consequences for the moment not only for that nation, but also for others who follow in their footsteps.
Spain, in this context, manages to place debt every day, but at costs that are close to record highs. Something similar happens in Italy. In both cases, the recession and unemployment are too common words, and so far are not sustainable outputs to these problems.
This not only creates a climate of uncertainty, but also causes an ambiguous feeling. Germany and France, for now the two countries better off and maintainers of the eurozone, issue joint statements endorsing the continuation of Greece as a member of the same. However, these expressions may have other interpretations indoors.
The meeting with German Chancellor Merkel and the French leader Hollande was suggestive. There was so much urgency to go to Berlin, while the guests at the inauguration ceremony of Hollande were still in the rooms prepared for that purpose, to issue a statement in favor of Greece. If so, is that too complicated ahead.
And this seems so complicated and can take shape after the middle of the week. Greece has announced new elections, probably on June 17 (Greece is the cradle of democracy and cannot be programmed with a specific date for an election a month later), and the feeling prevailing in the southern nation is that they do accept European aid, but the austerity plan imposed in return.
The ambiguous feeling that we alluded to wonder just happens to be best for the eurozone. If you keep a country that has shown signs of failure in each of the commitments, or directly held her hand.
In the first case, the danger is that, before a collapse of its banks, other banks fall at the same time, and certainly much more important than bank premises. Spain and Italy should expect then a new opportunity to receive more aid, as if only there was a fire truck to three fires.
If Greece finally is out of the euro, as is thought to happen, the severity of the situation is the same, but with another approach. Discounting the country return to Hellenic drachma currency before the euro, but hyper devalued, which will generate inflation, economic chaos and an immediate isolation from the rest of the world, Europe will take charge of debt, which was signed, endorsed and implemented by the European Union, IMF, and private banks.
If this happens, the contagion effect on other banks will be instantaneous, and only the European Central Bank, through a monumental issue euro may bring some relief to the situation. The ECB appears today as the only entity with the key out of the crisis, although the high cost, similar to what the Fed did in the American banking crisis of 2008 and 2009.
Germany refuses, rightly, to take such actions. But with the new French government, and the pressure will in the near future, will have to give.
In any case, the euro would be affected negatively. About a month ago we said we did not see reason for the single currency as bullish behavior observed, being that half of Europe is in recession and a record unemployment.
An issue of euro can only generate its devaluation and a resurgence of inflation, which by now seems the lesser evil, if what is sought is that at least the next two years more nations do not follow the failed path of Greece.
In this context, every day becomes more blurred for Europe, the euro continues to perform multi-month lows, accompanied by the British pound, which had remained very strong in recent weeks. For the rest of the day, and even when we expect a recovery in both currencies, the euro has brackets 1.2630, where he spends a month uptrend line (derived from mid-2010), and 1.26, the pound has goals at 1.57, still far from the current 1.5830.
Weekly unemployment rate of the Philadelphia Fed planned for within a few minutes, pass almost unnoticed, to a market that has its eyes, minute by minute, the European crisis.

The material has been provided by Instaforex Company - instaforex.com

The EUR/USD broke into new lows for the week, coming down to the 1.2660 level at the beginning of the 5/17 US trading session. The 1.2625-1.2660 support area has been documented at FXTimes on the daily chart.

The Euro slipped to a fresh monthly low of 1.2660 as the heightening risk of a Greek exit dragged on investor confidence, and the single currency may face additional headwinds over the remainder of the week as the threat for contagion continues to sap risk-taking behavior. Indeed, Spain missed its EUR 2.5B target as it sold EUR 2.49B in bonds, with the 2015 notes yielding 4.876% versus the 4.

With the pair selling off and breaking below its medium term rising trendline, further bearishness is expected in the days ahead. On continued weakness, GBP will target the 1.5805 level, April 05'2012 low with a violation of there allowing for more weakness towards the 1.5642/53 levels, its Feb 14/15'2012 lows.

With continued downside weakness seen, the cross looks to hold on to its broken support and weaken further. In such a case, its key support standing at the 126.53 level will be targeted on further declines with a cut through here aiming at the 125.45 level followed by the 124.50 level and then the 122.02 level, its Jan 25'2012 high.

 

The USD/CAD pair 4H chart revealed a strong bearish rejection of price level 1.0050, which pushed the USD/CAD pair downside towards 0.9990.
The lower limits of the Violet & Blue channels at 0.9990 were tested providing strong support for the USD/CAD pair.
Bullish rejection towards 0.9990 allowed the USD/CAD to initiate a new bullish swing towards 1.0155 establishing a significant support level at 1.0050.
Price Level 1.0100 is important on the 1H Chart as it corresponds to the lower limit of the Violet channel and to the mid-line of the Yellow channel where price action should be watched for a possible intraday position.
Breakdown of 1.0100 opens the way for Price Levels 1.0050 initially, then probably 1.0000. However, rejection with bullish price action towards this level will probably be a good BUY entry towards new higher levels.
It's important to note that the pair has an Intraday Resistance level at 1.0175 which corresponds to the upper limit of the Yellow channel which constitutes a valid SELL entry with SL located above 1.0205.

 

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The material has been provided by Instaforex Company - instaforex.com