Euro Gains Overnight; Risk Appetite Weakens U.S. Dollar
The U.S. Dollar is under pressure overnight against most
major currencies except the Japanese Yen. Trading has been light and less
volatile than last weekâ€™s trading conditions. Shortly before the New York session
opening, the Dollar is mounting a slight comeback and trading off its lows
against a few of its majors.
The lack of event risk is likely to make the movement of the
Dollar the catalyst and market direction driver this week. The first major report
is Thursdayâ€™s Weekly Jobless Claims, followed by Fridayâ€™s Retail Sales Report.
Risk appetite was up overnight, driven by strong demand from
Asia, favoring riskier, higher yielding
currencies. This is helping to drive up the AUD USD and NZD USD while putting
the lower-yielding Japanese Yen.
The primary driver of the Forex markets overnight is
speculation that European nations would rescue Greece financially if needed. Traders
are reacting positively to comments from French President Nicholas. Over the
weekend he said that the Euro Region nations are â€śreadyâ€ť to help Greece. He also
added however, â€śif it were necessaryâ€ť. These comments drove the EUR USD higher
as they reduced the perceived risk of debt defaults throughout Europe. His comments also seemed to backup claims
reported by the Wall Street Journal over a week ago that both France and Germany stand ready to provide up
to $41 billion in bailout money provided the Greek government stay on course to
reduce its debt load.
Last week, the Euro turned its trend to up on the daily
chart after Greece
agreed to make massive budget cuts. This helped to instill a little confidence
in the countryâ€™s finances. In addition, a Greek 10-year bond auction went off
without a hitch, further indicating renewed confidence in Greeceâ€™s ability to recover from
its financial crisis.
The combination of fiscally responsible measures and the
technical change in trend is an indication that investors are getting
comfortable that Greeceâ€™s
problems are not going to spill over into other sovereign nations such as Portugal or Spain.
Adding further to speculation that the tide may be turning
up in the Euro is the news that net shorts dropped the week-ending March 2nd in
the CFTCâ€™s Commitment of Traders Report. This weekâ€™s net short figure showed a
drop to 66,770 open positions versus 71,623 from late February.There are still a tremendous amount of shorts
in the market, so this change most likely reflects light position paring.
Should the major hedge funds all decide to head for the exits at the same time,
look for a huge short-covering rally.
The USD CHF is down overnight while the NZD USD is higher. The
Swiss Franc is trading higher because the stronger Euro reduces the possibility
of a Swiss National Bank intervention. In addition, the SNB meets later this
week on March 11th. Short-covering due to oversold conditions are helping to
drive the New Zealand Dollar higher. On March 10th, the Reserve Bank of New Zealand
meets to discuss monetary policy. It is expected to leave interest rates
unchanged due to the weak economy.
The USD CAD is falling as global investor demand is picking
up for the Canadian Dollar. Traders have been encouraged to by the CAD due to
the relative safety of the Canadian banking system. In addition, last week it
was reported that Canadian GDP rose more than expected. The chart indicates
that 1.0224 is the next downside target. This would put the market at a price
which triggered a Bank of Canada verbal intervention in January.
Finally, the GBP USD has been see-sawing overnight. It is
possible that the current short-covering rally could move up into a 50% level
at 1.5297 before new selling pressure begins. The British Pound continues to
remain weak because of the weak U.K.
economy, the widening budget deficit, a dovish monetary policy and political
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