Euro finishes down but Off Low

The EUR USD finished lower as speculation continued to grow that Greece would have to seek financial aid from the International Monetary Fund.

The EUR USD finished lower as speculation continued to grow that Greece would have to seek financial aid from the International Monetary Fund. The good news is France and Germany is behind such an agreement, thereby increasing the chances that the process of obtaining a loan may be expedited. In addition, once Greece obtains a viable financial agreement with the IMF, more European Union nations are likely to throw their financial support behind Greece.

This news came late in the trading session and allowed the Euro to finish off its low on some light short-covering. At the start of today’s session, it was apparent that Greece Prime Minister Papadreou would leave this week’s European Union summit on March 25th and 26th without a financial aid deal. This meant that Greece would have to turn to the International Monetary Fund for aid if needed. This was being perceived negative to the Euro because it makes Europe appear weak for allowing one of its members to go out of the EU to seek financial help. Now that France and Germany are behind the move to get the IMF’s backing, it appears to be a cooperative agreement rather than a sporadic move.

Although the market reacted with a short-covering rally on Tuesday, a financial aid agreement will be no guarantee of instant success for the Euro. Some investors do feel, however, that there are too many shorts in open positions to risk adding to positions at current price levels. This could mean a quick, sharp short-covering rally may take place if an amicable agreement is reached.

The Euro attempted to test the old main bottom at 1.3440, but stopped after it ran out of selling pressure at 1.3475. Traders seem a little reluctant to press the short-side at current levels out of fear of a possible short-covering rally.

The GBP USD lost ground on Tuesday. Sellers pressured the British Pound after a report showed that the U.K. inflation rate dropped to 3.0% in February. Coupled with political uncertainty and the threat of a credit rating cut, this weaker than expected inflation report confirmed a report released on Monday which calls for a “bumpy” recovery. Technically, this market is not looking too bad. Traders have been trying for three days to establish a secondary higher bottom inside of a retracement zone at 1.5080 to 1.5010.

Surprising the weaker Euro had no effect on the USD CHF which finished lower. Today’s action was all about the Swiss central bank. Overnight, Swiss National Bank President Phillip Hildebrand said the SNB is poised to act “decisively” to counter any “excessive” gains by the currency. He further added “For Switzerland, we can’t fully rule out deflation threats in the case of renewed external shocks”. “An excessive appreciation for the Franc against the Euro would for example be such a shock.”

This comment suggests that the SNB stands ready to continue to intervene on behalf of the Swiss Franc to protect its currency and economy. Today’s trading action in the USD CHF could be a sign that a Greek/IMF agreement is imminent.

Commodity-linked currencies turned around after earlier weakness when U.S. stock indices reached new highs for the year. This helped support the AUD USD and NZD USD while pressuring the USD CAD. Late in the session demand for higher risk assets picked up on the news that the France and Germany are getting behind a potential financial aid agreement between the IMF and Greece.

The chart pattern suggests that volatility is about to return to the USD JPY. For several weeks, this currency pair has been trading inside of a huge triangle position and now seems to be ready to break out. With the stock market continuing to press highs, it seems likely the USD JPY will test the high end of the triangle first. The chart formation suggests a potential breakout above 90.40. This could trigger a further rally to 90.95 and a change in trend to up over 91.08.