Euro Finishes Down but Off Low; Bond Auction Indicates Rates May Remain Low
The Euro finished down but off its session low when traders
lightened up positions following dovish comments from Fed Chairman Bernanke and
a better than expected 10-Year Note auction.
Bernanke said that economic conditions are continuing to
improve but there are still concerns about weak bank lending and a sluggish
housing market. His comments caused traders to soften their positions in the
Dollar which had been placed in anticipation of an interest rate hike by the
Fed. While Bernanke maintained his dovish stand, Kansas City Fed President
Hoenig warned that low interest rates are helping to form asset bubbles. He
suggested that the Fed raise its benchmark interest rate â€śsometime soonâ€ť.
Treasury markets rallied as yields fell following todayâ€™s
10-Year Auction. Traders bought a record amount of 10-Year debt. Demand was
strong which helped put pressure on yields. Some traders claim it was flight to
safety because of concerns over a Greek default which triggered the demand in
the Treasuries on Wednesday. Others believe the Fed will continue to keep
interest rates low until the economy reaches a sustainable level. For whatever
reason, yields remained low and traders now believe the Fed will leave interest
rates untouched for a while. This encouraged some bullish Dollar traders to
lighten up their positions.
The EUR USD traded weaker on renewed concerns that Greece will
default on its debt. Earlier today the spread between Greek Bonds and German
Bunds moved to a historically wide level signaling that investors felt that Greece may not
be able to finance its surging debt burden. Conditions are expected to worsen
as austere financial measures imposed by Greece to shore up its economy begin
to take hold. Losses were limited by rumors of central bank buying and lower
The GBP USD recovered from earlier selling pressure
triggered by a weaker than expected U.K. services industry reports.
Despite the strong intraday comeback, gains were limited by the key 50%
technical level at 1.5297. Look for downside pressure as long as this price
holds as resistance.
Lower equity prices helped to pressure the USD JPY.
Technically, this market has been under pressure since Mondayâ€™s closing price
reversal top. The chart pattern suggests a minimum 2 to 3 day break with a
possibility of a near-term decline to a 50% level at 92.26. A drop in Treasury
yields also contributed to the last session sell-off.
The USD CHF closed higher because of the weaker Euro.
Traders expect more intervention by the Swiss National Bank over the near-term
if the Euro continues to plunge. As mandated in its recent policy statement,
the SNB is poised to continue to defend its currency and economy through
interventions and open market operations. Technically this pair is in a
position to change the trend to up on a breakout over the last swing top at
Talk of a large U.S. investment bank purchase helped
to boost the USD CAD after this pair tested the waters below parity earlier in
the session. Oversold conditions and a closing price reversal bottom could
encourage short-covering on Thursday. The strong surge in gold appeared to have
been neutralized by the weakness in crude oil, thereby having little effect on
the Canadian Dollar today.Gold may not
be such a good indicator of strength in the Canadian Dollar at this time
because it appears to be decoupling from the U.S. Dollar. The daily chart
indicates the potential for a 2 to 3 day rally with 1.0138 the next upside
Higher gold prices and an early recovery in U.S. equity
markets helped drive up the AUD USD, but the late session sell-off in stocks
helped form a daily closing price reversal top. The current formation suggests
the start of a minimum 2 to 3 day break with .9149 the next downside target.
The trend is this market is decisively higher, leading to speculation that this
rally will not stop until the high for the year at .9329 is tested over the
near-term. Todayâ€™s reversal top suggests position paring rather than a change
The NZD USD finished better following a slight
follow-through to the upside following Tuesdayâ€™s minor reversal bottom. Higher
gold prices helped to underpin this market. Technically, this currency pair
turned the main trend down on the daily chart on Tuesday. The current rally
could be short-covering, but some traders feel that the possibility of an
interest rate hike in June is lending some support.
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