Greek Financial Problems Pressuring European Currencies

The Euro has been under pressure since late last week when it failed to attract strong buying after the main trend turned to up.

The Euro has been under pressure since late last week when it failed to attract strong buying after the main trend turned to up. The overnight weakness has pierced the last swing bottom at 1.3384, turning the main trend back down. Downside pressure could build if this market takes out two key retracement levels at 1.3402 and 1.3370. Look for this market to continue to feel downside pressure if the spread between Greek and German debt continues to widen.

The Dollar is trading sharply higher against the European currencies following reports of problems with the Greek bailout package. Both the June Euro and June British Pound are trading sharply lower as Greece tries to amend the proposal to receive aid from the International Monetary Fund and to negotiate better interest rates on loans from other European Union members.

Traders have been nervous since last week when Greek bonds began selling off and the cost to service its debt surged. Although the first bond issue was well received, it now appears that this may have been a token gesture by Euro Zone members. Since this initial offering, interest rates have slowing risen, making it very expensive to Greece to continue to function.

After three attempts to break out through a major 50% level at 1.5297, the British Pound finally succumbed to selling pressure overnight and now appears to be on a path to retrace to at least 1.5058 before attracting potential buyers. The main trend remains down, but it is possible that the British Pound is building a huge support base before its next rally. The recent release of the 4Q GDP results show that the economy is improving, but concerns continue to linger regarding the U.K.’s exposure to the Greek fiscal problems as well as political uncertainty.

The Dollar/Swiss is rallying due to the weaker Euro. Technically, the charts indicate that the trend will turn up on a move through 1.0751. A penetration of this price will be an indication that the situation in Europe is actually worsening. This could prompt additional selling pressure because of the threat of an intervention by the Swiss National Bank.

The Dollar/Yen is trading lower following Monday’s closing price reversal top. Japanese investors may begin bringing funds home because of risk aversion. A weaker stock market could trigger a surge in the Japanese Yen today. The chart pattern suggests the start of a 2 to 3 day break or a 50% correction back to 92.26. The latter scenario will likely take place if there is a huge sell-off in U.S. equities.

The strong Canadian economy and banking system continues to attract global investors into the Canadian Dollar. Firm crude oil and gold are helping to weaken the Dollar/CAD today. These are strong signs of demand for resources which should help the economy continue to grow. The charts indicate that although parity with the U.S. Dollar is the first objective of this move, downside momentum may not stop at this level.

The AUD USD is trading higher. Early this morning, the Reserve Bank of Australia raised its benchmark interest rate by 25 basis points to 4.25. This action came as no surprise but hawkish comments following the rate hike triggered a surge to the upside. In its policy statement, RBA Governor Stevens said further hikes are likely despite fears that they will erode consumer spending.

The main trend turned down in the NZD USD overnight. Last week’s IMF report calling the currency overpriced has been putting pressure on this market for almost a week. Traders are concerned that the high price New Zealand currency will hurt the export market and keep the economy from growing.