The EUR USD erased some of its weekly loss as weak shorts pared
their positions in the wake of positive developments out of the European Union
summit. Early Friday it was announced that France and German threw their
support behind a modified agreement to allow the International Monetary Fund to
provide bailout money to Greece
This news underpinned the market from the start of the New York session. Fridayâ€™s
rally approached the old bottom at 1.3440 but failed to overcome this level.
Regaining this price could trigger an acceleration to the upside if traders who
shorted on the break through this bottom decide to aggressively cover their
Although this event triggered a short-covering rally in the
Euro, traders approached the news with caution. The initial reaction to the
upside means that tensions have eased and fears calmed now that it appears Greeceâ€™s
sovereign debt problems will not spread to other Euro Zone nations after all.
Most traders now believe that this deal is enough to stop the slide in the
Euro, but not enough to turn the bearish trend around.
Earlier in the week, such a bailout deal looked pretty
remote. The Euro was falling, driven lower by comments from European Central
Bank President Trichet who said 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.
Throughout the week, traders felt that a deal was far from being made.
Traders became more optimistic about the prospects of a deal
late in the week 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 week 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
Fridayâ€™s 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 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
the current rally will be limited. The whole process of debating about
financial aid for Greece
has shaken investor confidence in the entire Euro Region.
The GBP USD traded better to end the week in a knee-jerk
reaction to the rise in the Euro. The inability to break to a new low for the
week helped to contribute to the rally. Like the Euro, this action is only
indicative of short-covering and not a potential change in trend. Neither a closing
price reversal bottom nor a main trend top breakout is taking place, meaning
that the trend is still decisively lower. Negative fundamentals such as
political uncertainty, the threat of a credit rating cut and a â€śbumpyâ€ť recovery
are helping to limit gains.
The USD JPY finished lower after attempting to take out Thursdayâ€™s
high at 92.95 and failing. The turnaround in the U.S. equity markets from up to down
also contributed to the weakness. Overbought conditions could drive this market
back down between 91.62 - 90.85 if the stock market continues to weaken.
Mixed demand for higher yielding assets helped to boost the
USD CAD. Higher gold and weaker crude oil was a sign of uncertainty. This news
triggered a continuation of the short-covering rally which began a week ago.
The daily chart indicates that there is room to the upside with 1.0369 to
1.0442 the next upside target.
The stronger Euro helped to pressure the USD CHF. Following
a rally inside a retracement zone at 1.0703 to 1.0749, this pair found sellers
who are now trying to work this market lower into another retracement zone at
1.0628 to 1.0600. The stronger the Euro gets, the less likely the Swiss
National Bank will intervene.
equity markets and overbought conditions helped to push the AUD USD lower.
Based on the main range of .8577 to .9251, traders should watch for a
correction back to the retracement zone at .8914 to .8834.
The NZD USD closed lower after an earlier attempt to
rally failed. This market traded inside of yesterdayâ€™s range indicating
impending volatility. The daily chart indicates that a break to .6992 to .6948
is likely over the near-term. Fridayâ€™s rally in the Euro appears to be bullish
only for the European currencies rather than the Asian and Pacific
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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