Renewed Confidence in Greece Deal Triggers Big Gain in Euro

The Euro soared on Tuesday as news that Greece is ahead of its deficit-reduction targets boosted investor confidence.

The Euro soared on Tuesday as news that Greece is ahead of its deficit-reduction targets boosted investor confidence. Traders celebrated the news that Greece may not require any bailout from the European Union by driving the EUR USD higher while posting its biggest gain in seven months.

Short-covering was most likely the driving force behind Tuesday’s rally which means a retracement is likely at some time this week. If this market is truly ready to change the trend to up, then fresh buying has to come in on the next test of the recent bottom. Bullish traders will try to set up a secondary higher bottom.

The GBP USD finished the day higher. A report released overnight showed that inflation accelerated in January to its fastest pace in 14 months. This news helped trigger a short-covering rally. Inflation was up 3.5% which exceeded the Bank of England’s target of 2.0%. This prompted a response by BoE Governor Mervyn King to explain the rise. Traders are becoming less confident in the BoE’s ability to help the economy while at the same time preventing a surge in inflation. Demand for higher risk assets helped the Pound overcome the economic issues it is facing.

The USD JPY finished slightly better on light trading. The week-long Chinese holiday may be playing games with the volume. Early during the trading session, the Dollar was trading lower against the Yen as Japanese investors repatriated gains from U.S. Treasury investments. Later, demand for higher risk assets and the stronger U.S. economy helped to drive investors out of the safety of the Japanese Yen into the U.S. Dollar.

The strengthening Euro diminished the possibility of another intervention by the Swiss National Bank. This helped to trigger a profit-taking break in the USD CHF. Traders should watch for a huge correction in this market should the Euro continue to post strong gains.

Sharply higher gold and crude oil boosted the Canadian Dollar on Tuesday. The main trend in the USD CAD is down on the daily chart. Today’s downside momentum has been strong enough to push this market through a key retracement zone at 1.0501 to 1.0436. Despite the sharp sell-off, most investors expect this market to remain inside the 1.0224 to 1.0780 range over the near-term.

Greater demand for risky assets is helped to boost the AUD USD. Tuesday’s strong rally exceeded a key 50% price at .8953. The next target is now .9042. Traders also reacted positively to the news from the Reserve Bank of Australia minutes. This report showed that the RBA vote to keep interest rates unchanged in February was closer than originally thought. This opens up the door to future rate hikes.

Renewed demand for higher risk assets helped drive up the NZD USD. Thin market conditions because of the Chinese holiday helped this market surge to the upside. The chart indicates that .7124 is the next upside target. Technically oversold conditions also helped to drive out weaker shorts.