EUR USD Finishes Sharply Higher but Traders Remain Cautious
The EUR USD finished the day up sharply but backed off its
high as traders took a cautious trading approach after several weeks of
declines. Short-covering drove this market up on speculation that the European
Union had reached a tentative agreement to provide loan guarantees to
Traders remain nervous about the outcome of the possible agreement. Most are
unsure whether this resolution will satisfy Greeceâ€™s
requirements, or be all-encompassing and include other struggling European
nations such as Spain and Portugal.
One key to sustaining stability to the affected Euro Region
will be solidarity. The European Union has to show the rest of the world that
it is acting as one. Too often during the past few weeks, the EU has appeared
disjointed. This type of behavior creates nervousness amongst investors.Although an agreement between the EU and Greece will act
to stabilize the Euro by diminishing investor fears, until it can prove that it
is acting as one unit, the entire situation could flare up again.
Appetite for risky assets helped drive down the U.S. Dollar on
Tuesday. Most of the action was attributed to profit-taking and position
adjusting as traders booked profits after several weeks of strength.
Speculation that a resolution to the sovereign debt problems in Greece and the
neighboring Euro Region had been reached, started in the Euro market early in
the session then spread throughout the major currencies. The Dollar did manage
a gain versus the Japanese Yen as demand for safety was mitigated.
The GBP USD posted a strong finish on Tuesday after trading
lower for several days while breaking key support levels. The gains in the
Pound served as a relief rally, triggered by short-covering.Investors are still skeptical about the U.K. economy as
well as sovereign debt issues of its own.U.K.
traders are worried that its oversized budget deficit will encourage debt
rating services to lower its credit quality. In addition, there is still
lingering doubt as to what the Bank of England will do with its quantitative
Aggressive demand for higher yielding assets helped to push
the USD JPY higher. Traders lightened up safe haven positions in the Japanese
Yen. Volatility was not as high as expected which could be an indication that
investors remain skeptical about the EU reaching a viable solution to the
sovereign debt problems in Greece.High volatility is likely to return once the
plan to shore up Greeceâ€™s
finances is finally approved.Long
positions in the Yen and other Asian currencies have become attractive
investments because the current fiscal problems driving these markets are
isolated in Europe.
Tuesdayâ€™s Euro rally took the pressure off the Swiss
National Bank to intervene on the Swiss Francâ€™s behalf. This helped to weaken the
USD CHF. The SNB will do anything to defend its currency against deflation and
this includes applying intervention when necessary. As long as the Euro continues
to appreciate versus the Swiss Franc, the SNB will avoid using intervention as
its main tool to maintain stability and order to this currency relationship.
This should help weaken the USD CHF.
Higher commodity and equity markets helped to fuel demand
for risky assets. This action led investors to step up demand for the Canadian
Dollar while exerting pressure on the USD CAD. The charts are indicating this
pair is likely to return to the middle of its â€śsuper rangeâ€ť at about 1.0500.
The AUD USD and NZD USD benefitted from renewed demand for
higher yielding commodities and equities. These two pairs have taken a beating
lately as traders dumped asset-related currencies during the height of the
Greek sovereign debt crisis. The failure of the Reserve Bank of Australia to raise rates at its last meeting and
the weak New Zealand
economic reports pressured both currencies. In addition, Chinaâ€™s decision to
begin raising interest rates while cutting back on its stimulus programs have
also led to speculation that demand for Australian and New Zealand goods and
services would be curtailed.
A return to more â€śnormalâ€ť risk conditions is likely to
benefit both markets. Technically, both of these markets posted closing price
reversal bottoms on Friday. These potentially bullish patterns were confirmed
overnight. The current patterns suggest a 2 to 3 day rally appears imminent. The
AUD USD has a potential upside target at .8593. The NZD USD may rally back to .7124.
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10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
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15:30 US- EIA Crude Thu 21 Dec
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POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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