Fx & gold weekly outlook February 20-24: Greece closes in on bailout despite worsening ties with Germany

The urgency of Greece bailout has become a matter of such an importance that the fate of European financial market''s future direction greatly hinges on the outcome of final announcement. Hence, global financial market is constantly monitoring developments in Greece as its cabinet has approved the austerity target given to them.
Today (Monday), European Union Finance Ministers will be meeting in Brussels to approve a new financing package for Greece. Although, optimism has grown that Greece has done enough to secure a second bailout package despite worsening relations with Germany, doubts remain over lenders'' demands for tighter supervision of how Athens will implement the deal.
In present times, Eurozone debts have become a nasty issue. Market hardly pays heed to economic data, though positive economic figures at times do provide some stability to the global equity market. In the foreign exchange market, however, improved economic data help investors buy US Dollar and sell currencies at better levels due to lingering European issues.
The real reason behind the delay in announcement is enormity of the fact that the European problems are extremely enormous and complex, a plenty and that even the resolution of Greece crisis does not guarantee soundness in the region. As the debt maturity begins on March 20, are in such a fix some sort of default looks imminent.
One of the concerns is that the initial experience of European Union with Greece has been very poor because after the release of 1st bailout package the promised austerity measures were never implemented in true sense. This is one of the major obstacles towards reaching an understanding.
The other disturbing factors for the European policymakers are upcoming elections in Greece and France in April. They are well aware of the possible consequences if the bailout package is refused to Greece. It could cause a contagion effect not only in Europe, but beyond.
Policymakers are well aware of the possible repercussions if Greece defaults. It would lead to dangerous destabilization in Europe. There is a fear that after French election any change of government poses a similar risk.
I think Europe will make a short-term offer to Greece to bridge the loan gaps. Temporary stability in Greece will encourage Nicolas Sarkozy of France to smoothen his election campaign, as pre-election polls do not suggest good electoral prospects for him.
Sarkozy is the key negotiator representing France, which is the 2nd largest European partner after Germany. If Sarkozy loses election, Europe may have to face more difficult time until new French leadership fully familiarizes itself with an increasingly worrisome European situation. Sarkozy, after a Greece bailout settlement, could use Euro as an effective tool in his election campaign.
Therefore, the proposition that looks simpler and easier is that Greece should get a short-term deal, but with extremely tough conditions. After the bailout package, we may see passage of 3 to 6 months without much work on austerity front as social unrest is likely to exacerbate during this period. It may hinder the work towards implementing reforms.
As time passes by Greece may not be able to adapt to new austerity measures and since Greece and French elections will be over by then, the former will be left with no choice but to exit.
To some extent, it may appear that last week''s meeting between three European leaders - Merkal, Monty and Papademos - was a successful one, but German finance minister''s statement suggests that he may not allow a smooth sailing, which also confirms reports about a clear split in Germany over the debt financing issue.
If the bailout announcement is not made on Monday (today) then the rescue package could be delayed until the EU summit meeting due on March 01.
In all probability, therefore Euro will remain in a bearish mode and there is still long road ahead, which means that to downside will remain intact and these minor occasional spikes will provide everyone with an opportunity to buy US Dollars.
There are some important US & European economic figures due to be released this week, but last week''s trend suggests that market will continue to focus on developments in Eurozone and economic data will not be a dominating factor.
However, any failure to conclude Greek deal will be obviously bad news for the financial market. It would contribute to uncertainty and unrest among investors.
EURO @ 1.3138 = Any positive Greece announcement should be used as an opportunity to sell Euro. I would continue to pick the topside of the range, as Euro will remain in depression for some more months. Currency surge will provide an opportunity to sell Euro and buy US Dollar.
During the week, I will be watching Euro and if it fails to move beyond the resistance level of 1.3240, the risk will increase for a push down to 1.2960 that may encourage a test of 1.2865, which is a favorable scenario. A break above the resistance see could pave way for a test of 1.3380.
GBP @ 1.5825 = Cable''s next resistance level is 1.5880 should hold or else 1.5940 will be crucial. However, an upward move should be short lived, as it requires a fall below 1.5720 that would open gates for 1.5660.
JPY @ 79.53 = The next level to watch is 79.90, a break of this crucial level may see next support for the currency at 80.45. If seen, these are not bad levels for the importers and position takers, because bottom for the currency will be probed. A cross-correction against euro could see yen gaining against the USD.
CHF @ 0.9195 = It has resistance around 0.9120. Should not penetrate, which means a break of 0.9260 would encourage for a test of 0.9335 or else the break of resistance level could push it towards 0.9040.
GOLD @ $1722.80 = News of Iran warship entering the Mediterranean Sea and China announcing a 0.5 percent cut in its reserve ratio requirement, second in 2 months, to provide liquidity for lending purpose to push growth, will help the Asian stock market. This news supports gold and oil. Gold could benefit and may hit a $1733-35 zone. Only a convincing break of this level could push the metal towards $1744.