EUR USD Rallies as Greek Budget Passes

The EUR USD finished the day higher after the Greek parliament approve a package of budget cuts and tax increases. These financial reforms prompted Greece’s prime minister to state that it wouldn’t need aid from other European Union members.

The EUR USD finished the day higher after the Greek parliament approve a package of budget cuts and tax increases. These financial reforms prompted Greece’s prime minister to state that it wouldn’t need aid from other European Union members. This was probably a response to reports from earlier in the week suggesting that Germany and France stood ready to provide aid to the struggling nation. At one point this week, Greece was even willing to seek aid from the International Monetary Fund.

The apparent resolution of the Greece budget crisis came on the heels of a successful 10-year bond issuance. Demand for the Greek debt was robust although it had to pay a hefting price to encourage interest.

The action by the Greek government to approve fiscal measures designed to shore up the economy is favorable news to the Euro. The move means that Greece is ready to accept fiscal responsibility and begin to move forward. Although the Euro is expected to respond favorably over the short-run, other Euro Region sovereign nations face similar problems if they are unwilling to make the budget cuts necessary to get control of their finances. This is why any rally in the Euro will be short-lived.

Traders should watch the CFTC’s Commitment of Traders Report to see if the record amount of short positions against the Euro has dropped. This will be the best indication of an impending short term rally because it will show that shorts traders are exiting their positions.

The U.S. Dollar finished lower against most major currencies after better-than-expected jobs data drove investors into higher yielding assets. The initial move in the Dollar was up after the U.S. Non-Farm Payrolls Report showed fewer jobs were lost than estimated. Traders bought the Dollar on the belief that the better jobs number would move the Fed closer to hiking interest rates. Higher interest rates would make U.S. investments relatively more attractive. This move was short-lived however as investor demand for higher yielding assets overcame the desire to hold Dollars.

The British Pound finished on its high. Upside momentum seems to be building which could take this market to a 50% level at 1.5297 over the near-term. The current rally appears to be driven by short-covering and bottom-picking following a sharp sell-off earlier in the week. The driving forces behind the recent sell-off have been the weak economy, soft monetary policy and political uncertainty. The current rally appears to be relief-driven, now that the Greece budget crisis has apparently ended.

The USD JPY closed sharply higher. The improving U.S. economy and demand for higher risk assets put pressure on the Japanese Yen as it resumed its role as a funding currency. Traders also reacted to the possibility that the Bank of Japan will announce more stimuli at its upcoming policy meeting. Friday’s rally completed the first objective of Thursday’s closing price reversal bottom when it reached a .618 price level at 90.61.

The strengthening Euro also helped to pressure the USD CHF. Traders expressed relief that a higher Euro will encourage the Swiss National Bank from any further interventions. The main downside objective remains a major 50% level at 1.0513.

Demand for higher risk assets gave the AUD USD and NZD USD a boost. The Aussie is one of the strongest currencies. Friday’s trading action proved this by taking out the .618 resistance level at .9042. This price is now new support. Watch for a possible acceleration to the upside now that the market has closed above the recent main top at .9070. Concerns about the New Zealand economy should help to limit gains in this market. Traders believe the Reserve Bank of New Zealand will keep interest rates low for some time since the economy has been unable to sustain a recovery.

The USD CAD finished sharply lower for the week, but downside momentum appears to be slowing as this market approaches the January low at 1.0224. The fundamentals support a higher Canadian Dollar because of the robust growth of the economy, but the Bank of Canada may attempt to stop its rise because it may damage the export market.

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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