The Euro made a successful test of last weekâ€™s low at 1.3584
and finished close to the middle of this weekâ€™s range. Early in the session,
the EUR USD broke sharply but buyers came in to defend the low. Volatility is
expected to continue to be high as traders are reacting to news or the lack of
news regarding the possible announcement by the European Union of a plan to
support the Greek economy.
The daily 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.
Timing the swings of the market has been difficult this week
as news has been sporadic. 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
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 British Pound tested this weekâ€™s low at 1.5534 before
mounting a strong recovery rally. 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.
Technically, this market has a short-term upside target of
1.5801 to 1.5865. Gains could be limited because of the economic issues in the U.K. On
Wednesday, 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.
The USD JPY finished the day slightly lower during an almost
lifeless trading session. Thursdayâ€™s weakness comes as a surprise because the
combination of the Greek rescue plan and Bernankeâ€™s talk of raising the
discount rate earlier in the week 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
lack of movement in this market could be suggesting that traders remain nervous
about the condition of the financial system.
The weaker Euro helped drive up the USD CHF. The high of the
day was within a few pips of last weekâ€™s high at 1.0794. This was also near an
area where the Swiss National Bank finished last weekâ€™s intervention action. 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 rally in the Euro over the past few days should
pressure the USD CHF because it eliminates the need for the SNB to intervene to
protect the value of its currency and its economy against deflation.
Canadian Dollar traders ignored the stronger Dollar and
instead chose to focus 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 in the USD CAD is related to
last Fridayâ€™s closing price reversal top. The main trend on the daily chart
turned down today on the move through 1.0545, but losses were 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 1.0436. The bigger picture suggests more
rangebound trading should be expected.
The AUD USD surged to the upside on increased demand for
higher yielding assets. Stronger than expected jobs data was the initial
trigger of Thursdayâ€™s rally. Last night, it was reported that the number of
jobs created was almost three times the pre-report 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 followed 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 near-term.
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