U.S. Dollar finishes lower under tight trading conditions
The U.S. Dollar finished lower against all major currencies
as trader demand for risk helped to pressure the Greenback. The weakness in the
Dollar was attributed to optimism in the Euro Zone over the potential positive
impact of the new European Union and International Monetary Fund bailout
proposal for Greece.
Throughout the day, the major theme was demand for risky assets as equities,
gold and crude oil posted strong gains, supporting the commodity-linked
The EUR USD closed up for the second consecutive day as weak
shorts continued to cover their positions in response to last weekâ€™s EU/IMF
Greece bailout agreement. The new plan is designed to help Greece should
it be unable to find financing in the capital markets. The proposal amounts to
a pledge to help Greece
out of the Euro Regionâ€™s biggest deficit if it runs out of traditional
On Monday, Greece
issued new 7-year financing priced in Euros. This $7 billion offering was the
first test as to how investors perceive the viability of the aforementioned
bailout plan. According to reports, the bond issue went off without a hitch
although the Greek government paid about a 3.10 basis point premium to complete
the sale. The relative ease of the bond issue helped relax tensions allowing
the Euro to remain firm throughout the day
The charts indicate the Euro has formed a new main range at
1.3817 to 1.3267. This range creates an upside target at the retracement zone
at 1.3542 to 1.3607. According to the CFTC Commitment of Traders Report, as of
March 23rd, hedge funds and large speculators account for a record net short
74,917 positions. The large number of shorts, the news regarding Greece and the
chart formation all suggest that this market is ripe for a short-covering
rally. Fresh buyers are likely to remain scarce until the Greek economy can
The stronger Euro pressured the USD CHF on Monday. The
higher the Euro rises, the less likely the Swiss National Bank is going to
intervene to protect its economy and currency. A better Euro will also allow
the SNB to focus on the possibility of an interest rate hike at its next
Demand for riskier currencies helped to boost the GBP USD. Despite
todayâ€™s rally, this currency pair remains in a downtrend, but is beginning to
show signs of the formation of a secondary higher bottom at 1.4797. Regaining a
key retracement area at 1.5010 to 1.5080 could trigger additional
short-covering, but the trend will remain down until 1.5381 is violated.
Fundamentally, although the British Pound is up because of
expectations of improvements in Greece,
continues to face fiscal problems of its own. The wide deficit as well as the
possibility of a debt rating cut, continue to weigh on the currency.
Uncertainty regarding the upcoming election and the possibility of a â€śhung
Parliamentâ€ť continues to linger. Early Monday the S&P Corp. said the U.K. credit
rating would remain unchanged. This news helped underpin the market somewhat
throughout the day, but did not encourage further short-covering.
Signs that the global recovery is gathering momentum
continued to underpin the USD JPY. Although this market is technically
overbought after last weekâ€™s surge to the upside, buying could resume this week
equity markets continue to push higher. Additional pressure could be on the Yen
following strong rallies in gold and crude oil. The charts indicate that the
January top at 93.77 remains the next likely upside target. 91.35 should provide
good support if tested. The inability to breakout to the upside in the U.S. equity
markets helped hold the Dollar/Yen in a range most of the session.
On Monday, greater demand for higher risk assets helped stop
the USD CAD rally in its tracks. The long-term downtrend could resume as
traders begin to price in the strong possibility of an interest rate hike by
the Bank of Canada. Speculators also bought the Canadian Dollar in anticipation
of a better U.S. Non-Farm Payrolls Report on Friday. A strong U.S. labor market is likely to benefit the
Canadian economy as well as the U.S.
This would help bring the BoC closer to hiking interest rates before the Fed.
Expectations of better retail sales this week and talk of
another interest rate hike helped to boost the AUD USD. The overnight action and
follow-through to the upside during the New
York session are indications that demand for higher
yielding assets has returned.
Over the week-end, Reserve Bank of Australia
Governor Stevens said house prices are â€śgetting quite highâ€ť. This signaled to
traders that interest rates may need to be increased further. Stevens also said
that borrowing costs need to be returned to â€śnormalâ€ť levels. Both of these
comments encouraged traders to buy the Aussie. Todayâ€™s strong move in the
currency helped this market close above a key retracement zone at .9126 to
Renewed buying in higher risk assets also gave the NZD USD a
boost. The higher-top, higher-bottom formation suggests that the main trend is
likely to continue up. Regaining a 50% price level at .7124 could trigger an
acceleration to the .618 level at .7199. A break out over the last swing top at
.7178 will reaffirm the uptrend. There is also some speculation that the
Reserve Bank of New Zealand
may raise interest rates as early as June.
Given the absence of any major economic reports until
Friday, look for traders and speculators to continue to focus on Greece and the
other sovereign debt issues lingering in the Euro Zone economy.
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