Dollar Trades Flat after Mid-Session Euro Sell-off
The U.S. Dollar had a choppy, directionless day. The lack of
event risk was likely the main reason for this as well as the easing of the
Greek fiscal crisis. Trading could continue in a similar manner over the next
few days because the first major report, Weekly Jobless Claims, is not due out
until Thursday. This will be followed by the Retail Sales Report on Friday.
The Greenback started the New York session under pressure against most
major currencies except the Japanese Yen. Trading was light and less volatile
than last weekâ€™s action. Shortly before the New York session opening, the Dollar began
to mount a slight comeback which accelerated into the mid-session.
The strong rally into the mid-session occurred as traders
backed away from higher risk assets. Comments from German Chancellor Angela
Merkel may have been the catalyst behind the weakness in the Euro. Merkel said
that a Greek bailout is not on the table and pointed toward the no bailout rule
in the European Union agreement as the reason behind her comment.
Another reason for the mid-session weakness in the Euro may
have been comments from Greek Prime Minister Papadreou who hinted that heâ€™d be
willing to turn toward the International Monetary Fund for help if the EU didnâ€™t
come through with financial aid. His comments were most likely designed to
light a fire under the EU to take action sooner.
Papadreou, in Washington to
meet with the President and other government officials, also wants the U.S. to
investigate recent trading activity in the Euro to look for signs of
manipulation or excessive speculation. This action could prompt a rapid
liquidation by hedge funds which would trigger a massive short-covering rally.
Risk appetite was up overnight, driven by strong demand from
Asia, favoring riskier, higher yielding
currencies. This helped drive up the AUD USD and NZD USD while putting the
lower-yielding Japanese Yen. Approaching the mid-session, the Aussie and Kiwi
weakened but were able to regain their strength into the close.
The primary driver of the higher Forex markets overnight was
speculation that European nations would rescue Greece financially if needed. Traders
reacted 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
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 was 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.
The USD CHF was down overnight while the NZD USD traded higher.
The Swiss Franc was 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 helped
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 fell as global investor demand picked 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.
The GBP USD made an attempt to rally overnight before
turning down during the New York
session. The British Pound continues to remain the weakest currency because of
the poor U.K.
economy, the widening budget deficit, a dovish monetary policy and political
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