Major Currencies Falter as European Union Fails to Deliver Greece Decision

All major currencies are down versus the U.S. Dollar overnight after the European Union failed to deliver a resolution to the Greece sovereign debt problem. Yesterday, 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.

All major currencies are down versus the U.S. Dollar overnight after the European Union failed to deliver a resolution to the Greece sovereign debt problem. Yesterday, 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.

In the EU’s defense, it is most likely crossing every “t” and dotting every “i” because of the importance of this agreement. The EU has to assure the global investing community that it is indeed a “union”.

Reports last night highlighted that over 5 billion Pounds have been bet on the short-side of the Euro. If a viable agreement is reached today, then look for these shorts to begin covering positions. This could 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 become 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 likely to get hit with great selling pressure should a pact be announced today. 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.

The GBP USD is likely to rally, but 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.

If the EU fails to announce that an agreement has been reached with Greece, then look for traders to focus on the testimony of Fed Chairman Bernanke for direction. Today, Bernanke will testify before Congress. The main topic he will address will be economic stimulus. He will most likely be asked about withdrawing economic stimulus and to offer ideas about the Fed’s exit strategy.

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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