Euro Remains under Pressure on Uncertainty over Greece Rescue Plan

The U.S. Dollar remained under pressure at the mid-session as the lack of concrete news regarding the European Union’s plan to guarantee Greece’s debt caused investors to remain nervous.

The U.S. Dollar remained under pressure at the mid-session as the lack of concrete news regarding the European Union’s plan to guarantee Greece’s debt caused investors to remain nervous. The Dollar received an additional boost when Fed Chairman Bernanke hinted that the Fed’s exit strategy included raising interest rates. Since the EU has failed to announce that an agreement has been reached with Greece, traders have been focusing on the testimony of Fed Chairman Bernanke for direction.

All major currencies are down versus the U.S. Dollar at the mid-session after the European Union failed to deliver a resolution to the Greece sovereign debt problem. On Tuesday, currencies led by a rally in the Euro, pressured the Dollar on hopes that the EU and Greece would reach an agreement regarding loan guarantees to ensure Greece would not default on its sovereign debt.

Early trading conditions suggest that traders are growing impatient with the EU foot-dragging, but the markets could turn quickly at even a hint of a resolution. Traders should expect unusual volatility and sudden changes in direction as traders jockey for position ahead of this monumental pact.

If a viable agreement is reached today, then look for the start of a short-covering rally. This will trigger a massive rise in the Euro. On the other hand, a failure to announce a pact today will most likely weaken the Euro as bullish traders will remain nervous holding on to long positions. Any hesitation may also encourage hedge funds and bearish traders to add to their massive short-positions.

If the European Union decides to guarantee Greece’s debt then look for trader appetite for risk to skyrocket. This should trigger strong rallies in equities and commodities. The Australian, New Zealand and Canadian Dollars are likely to benefit the most over the short-run.

The USD CHF is up at the mid-session. The weaker Euro is helping to contribute to this strength. A move by the EU to shore up Greece’s debt will take the pressure off the Swiss National Bank to defend its currency against rapid appreciation and deflation.

Sovereign debt concerns regarding Greece are helping to keep the pressure on the GBP USD. If a resolution is announced today then, look for the British Pound to rally. Gains could be limited as traders will refocus on the U.K. economy. In addition, some traders are still concerned that the U.K. budget deficit could trigger similar problems the Greece deficit is causing.

The USD JPY is the best indicator as to how investors feel about risk and should be watched closely. The Dollar has been slowly rising versus the Yen the past three days, but not enough to assure traders to take on risk again. The recent action resembles cautious optimism. The Dollar is stronger versus the Japanese Yen today because of comments from Fed Chairman Ben Bernanke calling for higher interest rates.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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