| By: Joel Kruger, Technical Currency Strategist for DailyFX.com
- Greece uncertainty lingers and could start to weigh more heavily
- French and Spanish auction results solid but don't factor
- Risks for contagion to other Eurozone nations and global economy
- China, commodity bloc and emerging markets at risk for relative under performance
- USD still seen as attractive investment in 2012 even against Yen
We have been calling for a pullback in risk correlated assets over the past few days and are starting to see it finally play out into the latter half of the week. While risk appetite seemed to be well supported on expectation for a Greece bailout, and much of the build up in these risk correlated markets was driven by this fact, now that we are moving forward again, it has once again become apparent that even if the Greece deal goes through, there is still a high level of uncertainty around the ability for the bailout to act as an effective mechanism to stimulate the beleaguered nation's economy and save it from the brink of collapse. This then raises the even more important issue of whether the Greek bailout can also act as a firewall, protecting a further spread to other Eurozone countries like Italy, Spain and Portugal, and then an even further spread beyond the Eurozone to countries like China, Australia, and other emerging market nations.
Relative performance versus the USD Thursday (as of 11:45GMT)
GBP -0.11%
AUD -0.26%
CAD -0.34%
JPY -0.47%
CHF -0.52%
EUR -0.53%
NZD -0.78%
We have argued for some time that the contagion will in fact spread into these other economies and we continue to see risk correlated assets overvalued as a result. Currencies like the Australian and New Zealand Dollars have outperformed for some time now, but we contend the outperformance is less a function of local fundamentals and more attributed to attractive yield differentials. We therefore anticipate a turn in sentiment towards these markets as the fundamental shortcomings in these economies become more pronounced and start to offset any of the yield advantage. Again, our view of the global equity markets has been more to the bearish side given the latest surge, and we see equity markets a good deal lower from current levels which sit unnervingly close to record levels that were seen pre-global recession back in 2007. Overall, our core outlook is bullish on the US Dollar across the board and the most bearish on the overvalued commodity bloc currencies. We also see the Yen at a major inflection point and regardless of risk metrics going forward, we see plenty of upside in USD/JPY with the market carving out a longer-term complex basing pattern. 
TECHNICAL OUTLOOK
EUR/USD: The market has now broken back below key support at 1.3025 to suggest that the corrective rally in 2012 has come to an end and a fresh medium-term lower top is now in place by 1.3325. At this point, we would look for confirmation on a weekly close below 1.3025, and should we in fact get this close, we look for underlying bear trend resumption off of the 2008 record highs which should open a fresh downside extension towards the 1.2000 area over the coming weeks. The key level to watch below on a medium-term basis is the 2012 low by 1.2625, and it will be interesting to see if the market can gravitate back towards this level now that 1.3025 has been broken.
 USD/JPY:The market has broken back above the 200-Day SMA for the first time in several months, while also managing to break to fresh 2012 highs beyond 78.30. Next key resistance comes in by the October highs at 79.55 and we look for a test of this level over the coming sessions. We could be in the process of seeing a major structural shift and once 79.55 is cleared, confirmation will be given. At this point, only back under 76.50 would negate outlook and give reason for concern. GBP/USD: Gains have stalled out just shy of the 200-Day SMA for now and the market looks like it could be in the process of once again rolling over in favor of a bearish resumption. The key level to watch comes in at 1.5645, and a daily close below will confirm outlook and accelerate declines back down towards the 1.5250 area. Back above 1.5830 however would delay and give reason for pause.
USD/CHF: Setbacks have been very well supported in early 2012 ahead of 0.9000, and it looks as though the market could finally be carving a medium-term higher low ahead of the next major upside extension. The recent break back above 0.9265 reaffirms, and we will now look for a weekly close above this level to provide added confirmation for probability of underlying bullish resumption. Ultimately, look for a push back above 0.9600 and towards 1.0000 over the coming weeks. Only a break below 0.9000 would negate and give reason for concern.
-- Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger
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