The Euro is trading
lower at the mid-session but well off its low as traders attempt to
mount a recovery following a sharp sell-off earlier this morning.
Volatility is expected to continue to be high as traders are reacting
to news and the lack of news regarding the possible announcement by the
European Union of a plan to support the Greek economy.
the swings of the market has been difficult today. One thing that has
been made clear is an agreement between the EU and Greece has been
reached. The main issue driving the Dollar and the Euro today is the
details of the pact. Some bullish Euro traders apparently were led to
believe that a bailout out would take place, but that does not appear
to be the case.
Talk is circulating that the pact is a show of
solidarity by the European Union. This is likely to mean that the EU as
well as the International Monetary Fund will maintain a watch over the
Greek budget and assure adherence to its strict requirements.
Furthermore, loans will be provided when deemed necessary to shore up
the Greek economy.
Skeptics maintain that this type of agreement
will not last and that similar issues are likely to flare up in
Portugal and Spain. These issues will once again test the foundation of
the European Union. If anything, trader reaction has been less than
bullish although the door has been left open for a substantial
short-covering rally in the EUR USD.
The Euro chart pattern
suggests this market is being wound tightly. The longer it remains in a
tight range the stronger the breakout move. A rally through this weekâ€™s
high at 1.3838 should put this market on path to retrace to at least
1.4079 over the near-term. Early in todayâ€™s session, the EUR USD
survived a test of the recent bottom at 1.3584.
The GBP USD
tested this weekâ€™s low at 1.5534 before mounting a strong recovery
before the mid-session. This market appears to be forming a support
base and like the Euro is awaiting details of the Greece rescue plan.
Shorts are likely to cover as the details of the rescue are released.
this market has a short-term target of 1.5801 to 1.5865. Gains could be
limited because of the economic issues in the U.K. Yesterday the Bank
of England lowered its inflation estimate while hinting at expanding
and extending its quantitative easing program. Furthermore, just
because Greece is being helped out does not mean the deficit issues
facing the U.K. will go away. Over the short-run, the focus may shift
away from Greece to the U.K. credit rating.
The USD JPY is
trading lower and in a tight range at the mid-session. Todayâ€™s weakness
comes as a surprise because the combination of the Greek rescue plan
and Bernankeâ€™s talk of raising the discount rate should have been
supportive for the Dollar. In addition, increased appetite for risk
should have triggered a more bullish response. Short-term overbought
conditions could be triggering the weakness.
The weaker Euro
helped drive the USD CHF to within a few pips of last weekâ€™s high at
1.0794. Because of the magnitude of the situation in Greece, traders
may be waiting for the actual release of the details from the EU/Greek
pact before committing to the short-side. A recovery in the Euro late
in the trading session should pressure the USD CHF because it
eliminates the need for the Swiss National Bank to intervene to protect
the value of its currency and its economy against deflation.
Dollar traders are ignoring the stronger Dollar and instead are
focusing on the strength of gold, equities and crude oil. The USD CAD
opened lower, but rallied a little early in the session as the Dollar
strengthened and risky assets fell.
Technically, this current
break is related to last Fridayâ€™s closing price reversal top. The main
trend on the daily chart turned down on the move through 1.0545, but
losses have been limited after a successful test of a 50% price at
1.0501. A failure to hold this level will trigger a further decline to
The AUD USD is surging to the upside on increased
demand for higher yielding assets. Stronger than expected jobs data was
the initial trigger of todayâ€™s rally. Last night, it was reported that
the number of jobs created was almost three times the estimate. This
has once again triggered the debate over an interest rate hike by the
Reserve Bank of Australia now that there is evidence the economy may be
heating up. The charts indicate this market is on course to reach a
major retracement zone at .8953 to .9042.
The NZD USD is
following the Australian Dollar higher. Traders are also speculating
that a pact between the EU and Greece will calm the markets and
increase trader appetite for risk. Last night, the New Zealand Dollar
entered a retracement zone at .6978 to .7019. A breakout over .7019
could trigger an acceleration to the upside to .7124 over the