After falling to take out Thursdayâ€™s low, the EUR USD
strengthen on the news that Euro Zone leaders agreed on a financial aid package
for cash-strapped and debt-laden Greece. In keeping with its mandate
not to provide direct bailout aid to a European Union member, the EU nations
agreed to provide approximately $30 billion in loans should Greece have problems borrowing
money to service its high debt levels.
Although this news has triggered a short-covering rally in
the Euro overnight, traders are approaching the news with caution. The initial
reaction is that the deal could ease tensions and calm fears that Greeceâ€™s
sovereign debt problems will spread to other Euro Zone nations. Most traders do
believe that this deal is enough to stop the slide in the Euro, but not enough
to turn the bearish trend around.
At Thursdayâ€™s New
York session close, such a bailout deal looked pretty
remote. The Euro was breaking into the close of the session, driven lower by
comments from European Central Bank President Trichet saying that a bailout
from the International Monetary Fund would be bad for the Euro. His feeling was
that help from the IMF would make the EU look weak and unable to take care of
its own financial problems. Going home after the U.S. close, traders felt that a
deal was far from being made.
Traders became more optimistic about the prospects of a deal
when a plan endorsed by France
was agreed upon. The new deal calls for a mix of IMF and bilateral loans.Afterwards, Trichet embraced the proposal
saying he was â€śextraordinarily happy that governments of the Euro area found
out a workable solution.â€ťHis statement
amounted to an about face from a statement earlier in the day when he said that
an IMF role in the funding of a rescue plan for Greece would be â€śvery, very
Trichetâ€™s acceptance of the plan was mostly responsible for
the overnight short-covering rally. His acceptance of the proposal helped ease
concerns that Euro Zone officials would be unable to resolve the fiscal
problems in Greece.
Whether a turnaround in the Euro today marks a major bottom
is really up to the hedge funds at this time. Recent data suggests that hedge
funds and large speculators remain net short the Euro in a big way. Until these
large traders are forced to cover shorts or turn into buyers, expectations for
a rally will be limited. The whole process of debating about financial aid for Greece has
shaken investor confidence in the entire Euro Region.
Although the bailout news is triggering a short-covering
rally overnight, the Euro has not yet even reached the old bottom at 1.3440.
Regaining this price could trigger more short-covering, but unless this market
finishes over last Fridayâ€™s close at 1.3529 to produce a weekly closing price
reversal bottom, the EUR USD doesnâ€™t look very strong yet.
The GBP USD is trading better overnight in a knee-jerk
reaction to the overnight developments in the Euro Zone. The British Pound
appears to have survived another attempt to drive it through the most recent
bottom at 1.4780, but still remains in a solid downtrend. Shorts may lighten up
a little on the overnight news, but nothing serious is expected to take place
on the upside until the retracement zone at 1.5010 to 1.5080 is regained. The
British Pound is still facing problems because of the expected â€śbumpyâ€ť
recovery, political uncertainty and the threat of a credit rating downgrade.
The USD JPY is having a muted reaction to the news out of Europe. Overnight this pair is trading lower, but inside
of yesterdayâ€™s range. Overbought conditions may be the cause of this reaction
or the thought that this news only affects the Euro Region not the Asian
markets. At the start this morning, traders will have to decide whether to test
the old breakout level at 92.14 or make another drive toward the January top at
As expected the USD CHF is feeling pressure overnight
because of the rise in the Euro. The rally in the Euro is taking pressure off
the Swiss National Bank to intervene to defend its currency and export markets.
This recent rally stopped inside a retracement zone at 1.0703 to 1.0749 which
is a normal resistance area. Further weakness today could trigger a decline to
1.0628 to 1.0600.
Despite the strength in the European currencies and a pick
up in demand for gold, crude oil and equities, the USD CAD is trading higher.
This market is seems to be setting up for a big move. Counter-trend traders
want to see a rally to the major retracement zone at 1.0369 to 1.0442. On the
downside, minor support has been established at 1.0170 to 1.0144. Todayâ€™s U.S.
GDP report could be the catalyst which moves this market.
The AUD USD is failing to show a bullish reaction to the
overnight strength in the equity markets. The chart indicates that this market
may be headed toward a retracement zone at .8914 to .8834 before any
significant buying surfaces.
Unlike the Aussie, the NZD USD is trading higher. Increased
demand for riskier assets is helping to push this pair away from a support zone
at .6992 to .6948 and toward an upside target at .7124. A strong surge in U.S.
equity markets could trigger an even further rally to the upside.
Although the Euro Zone situation will be on the minds of
traders throughout the day, this morning, U.S. GDP and Consumer Sentiment could
be an early session catalyst.Economists
are looking for GDP growth for the fourth quarterâ€™s second estimate to be up
5.9%.The University of Michiganâ€™s
Consumer Sentiment Index is expected to come in at 73.0. A downward revision
will reflect the negative attitude of consumers without jobs. In addition,
higher gasoline prices may weigh on the index.
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