Demand for Risk, Greek Resolution Fuel Stock Market Rally
The EUR USD finished the day higher after the Greek
parliament approve a package of budget cuts and tax increases. These financial
reforms prompted Greeceâ€™s
prime minister to state that it wouldnâ€™t need aid from other European Union
members. This was probably a response to reports from earlier in the week
suggesting that Germany and France stood
ready to provide aid to the struggling nation.At one point this week, Greece
was even willing to seek aid from the International Monetary Fund.
The apparent resolution of the Greece budget crisis came on the
heels of a successful 10-year bond issuance. Demand for the Greek debt was
robust although it had to pay a hefting price to encourage interest.
The action by the Greek government to approve fiscal
measures designed to shore up the economy is favorable news to the Euro. The
move means that Greece
is ready to accept fiscal responsibility and begin to move forward. Although
the Euro is expected to respond favorably over the short-run, other Euro Region
sovereign nations face similar problems if they are unwilling to make the
budget cuts necessary to get control of their finances. This is why any rally
in the Euro will be short-lived.
Traders should watch the CFTCâ€™s Commitment of Traders Report
to see if the record amount of short positions against the Euro has dropped.
This will be the best indication of an impending short term rally because it
will show that shorts traders are exiting their positions.
The U.S. Dollar finished lower against most major currencies
after better-than-expected jobs data drove investors into higher yielding
assets. The initial move in the Dollar was up after the U.S. Non-Farm Payrolls
Report showed fewer jobs were lost than estimated. Traders bought the Dollar on
the belief that the better jobs number would move the Fed closer to hiking
interest rates. Higher interest rates would make U.S. investments relatively more
attractive. This move was short-lived however as investor demand for higher yielding
assets overcame the desire to hold Dollars.
The British Pound finished on its high. Upside momentum
seems to be building which could take this market to a 50% level at 1.5297 over
the near-term. The current rally appears to be driven by short-covering and
bottom-picking following a sharp sell-off earlier in the week. The driving
forces behind the recent sell-off have been the weak economy, soft monetary
policy and political uncertainty. The current rally appears to be
relief-driven, now that the Greece
budget crisis has apparently ended.
The USD JPY closed sharply higher. The improving U.S. economy
and demand for higher risk assets put pressure on the Japanese Yen as it resumed
its role as a funding currency. Traders also reacted to the possibility that
the Bank of Japan will announce more stimuli at its upcoming policy meeting. Fridayâ€™s
rally completed the first objective of Thursdayâ€™s closing price reversal bottom
when it reached a .618 price level at 90.61.
The strengthening Euro also helped to pressure the USD CHF.
Traders expressed relief that a higher Euro will encourage the Swiss National
Bank from any further interventions. The main downside objective remains a
major 50% level at 1.0513.
Demand for higher risk assets gave the AUD USD and NZD USD a
boost. The Aussie is one of the strongest currencies. Fridayâ€™s trading action
proved this by taking out the .618 resistance level at .9042. This price is now
new support. Watch for a possible acceleration to the upside now that the
market has closed above the recent main top at .9070. Concerns about the New Zealand
economy should help to limit gains in this market. Traders believe the Reserve
Bank of New Zealand
will keep interest rates low for some time since the economy has been unable to
sustain a recovery.
The USD CAD finished sharply lower for the week, but
downside momentum appears to be slowing as this market approaches the January
low at 1.0224. The fundamentals support a higher Canadian Dollar because of the
robust growth of the economy, but the Bank of Canada may attempt to stop its
rise because it may damage the export market.
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