Euro still soft on Portugal bailout talks

Euro remains broadly soft today on talk of imminent bailout for Portugal, as pressured by Germany, France and other countries. Though, that was quickly denied by European commission as they said there were no discussions under way on this issue.

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10 year Portuguese bond yield spiked higher to 7.43% before falling back below 7.1% on rumor that ECB is buying in the secondary markets to intervene the bond prices. After all, there is no sign of sustainable recovery in the common currency and we'd expect it to remain under pressure in near term, at least before auctions of 2014 and 2020 Portugal government bonds on Wednesday.

Sterling was originally resilient as supported by buying against Euro. However, weak house price data released earlier in European session knocked the pound off high against dollar. Halifax house price dropped much steeper than expected by -1.3% mom in December and was the second consecutive month of decline. Though, Halifax housing economist said that homeowners are becoming "more reluctant to sell" and that would "help reverse the imbalance between buyers and sellers" and stabilize house prices.

Other data released today saw australian retail sales rose 0.3% mom in November, inline with expectation. Swiss retail sales rose 2.5% yoy in November, much stronger than consensus of 0.9% yoy. Eurozone Sentix Investor Confidence rose less than expected to 10.6 in December. Canadian housing starts dropped sharply by -11.2% mom in November.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9619; (P) 0.9654; (R1) 0.9706; More.

USD/CHF is staying in tight range below 0.9707 temporary top and intraday bias remains neutral for the moment. More consolidations could still be seen. But after all, there is no change in our bullish view. Fall from 1.0065 was completed and a short term bottom is at least formed at 0.9300. Considering bullish convergence condition in daily MACD, fall from 1.1729 might be finished too. Hence, we'd expect downside to be contained above 0.9468 minor support and bring another rise. Above 0.9707 should should target a test on 1.0065 resistance first. Though, below 0.9468 will dampen this view and turn focus back to 0.9300 low.

In the bigger picture, the stronger than expected rebound from 0.9300 raises that possibly that a medium term bottom is formed already. This is supported by the strong rebound from 100% projection of 1.2296 to 0.9916 from 1.1729, as well as bullish convergence condition in daily MACD. Sustained trading above 55 days EMA (now at 0.9722) will affirm this bullish case and target 1.0065 resistance for confirmation. Break there should confirm that start of a medium term rally. Before that, recent down trend could still continue with another low below 0.9300. We pay close attention to the eventual structure of the rise from 0.9300 to adjust our view.

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