EUR USD Plunges on Concerns Greece Fiscal Problems Could Escalate
The EUR USD closed sharply lower, pressured by concerns that
despite the proposal of a new budget plan, Greece lacks the means to deal with
its deficit issues on its own. Fears were also being raised that the fiscal
problems in Greece
are not isolated and may spread throughout the Euro Region should it default on
its debt. Risk aversion set in and traders bailed out of the Euro as they
sought protection against the possibility of a collapse in Greece.
This morning the European Central Bank announced that
interest rates would remain at 1% and stimulus intact as the economic
conditions in the Euro Zone have not improved enough to warrant any changes.
Although ECB President Trichet said he â€śis confidentâ€ť that Greece would get its budget under
control, traders acted as if it was going to take a bailout by the European
Central Bank, European Union or International Monetary Fund to take care of the
Trichet tried to calm fears of a meltdown in Greece by
saying the Euro Zone still faces major issues, but he is confident it is headed
toward recovery. His statement failed to prevent a further deterioration in the
Euro as the focus began to shift from Greece
to Portugal and Spain.
By the mid-session, the Euro was trading under an important
50% level at 1.3800. Downside momentum was strong which could drive this market
to the .618 level at 1.3483 over the near-term.
The theme of the day in almost all major currency markets
was risk aversion as investors sold higher risk commodities and stocks and
bought lower yielding assets throughout the New York
session on concerns the sovereign debt issues in Greece will spread to other
economies in the Euro Region. The Dollar finished sharply higher versus all
major currencies except the Yen.
Investor concerns about the sovereign debt woes in Greece ignited the break in equities and
commodities overnight, but a decision by the Bank of England and poor U.S.
jobs data helped to accelerate the rally in the Dollar. Traders took protection
while seeking shelter in the Dollar and the Japanese Yen.
The Bank of England as expected announced that interest
rates would remain at a historically low level. In addition, it voted to take a
pause in its quantitative easing program, but left open the possibility it
would increase its asset buyback program should conditions warrant such a move.
Traders didnâ€™t like the news and sold the GBP USD aggressively. Investors are
now becoming concerned that the deficit problems in the U.K. may escalate like they are in Greece.
The USD JPY finished sharply lower as investors sought
safety in lower yielding assets over concerns about the possibility of
sovereign debt default in Greece.
Traders took the Yen higher after the ECB offered no viable solution to the
problems in Greece,
nor did it provide any confidence that the matter would not spread to other
Euro Region nations. The Japanese Yen tends to strengthen during economic
turmoil and uncertainty.
Look for this pair to continue to be the risk sentiment
indicator. As long as the fear of default exists, the Yen should continue to
appreciate. At this time, the Bank of Japan has no plans to halt the rise in
its currency. This could help fuel a steep decline in the USD JPY over the near-term.
The stronger Dollar pressured demand for commodities, namely
gold and crude oil. This action helped to fuel weakness in the Canadian Dollar.
Strong upside momentum drove the USD CAD through the last main top at 1.0720.
The weekly chart indicates that 1.0870 is the next upside target.
The weakening Euro once again raised fears the Swiss
National Bank would intervene to prevent the Swiss Franc from appreciating too
much versus the Euro. This helped the USD CHF mount a strong rally throughout
the day. Barring any changes with the Greece sovereign debt situation,
the next upside target is 1.0942.
The AUD USD closed sharply lower after making a new low for
the week. News that Australian Retail Sales dropped 0.7% in December fueled
most of last nightâ€™s break. Additional pressure came from a fall in demand for
higher yielding assets. Concerns over risk are the catalysts behind the current
weakness. The December low at .8734 was broken on Thursday, turning the main
trend down on the weekly chart.
The NZD USD plunged to its lowest level since September
overnight following the news that the New Zealand unemployment rate
surged to its highest level since 1999. The move from 6.5% to 7.3% confirms the
Reserve Bank of New Zealandâ€™s
concerns about a weak economy.
Todayâ€™s bearish news may force the RBNZ to change its
forecast for a rate hike from the middle of the year to later.Additional downside pressure came from
traders dumping higher yielding assets because of the possibility that debt
issues in Greece
would spread to other Euro nations. The weekly chart reaffirmed the down trend
when it broke through support at .6970.
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