Euro Weakens Amid Greece Fears; Investors Looking for Clarity

Uncertainty over whether a Greecefinancial aid package would be worked out in the short-run and fear thatsovereign debt problems are spreading across Europeto other countries is pressuring the Euro overnight.

Uncertainty over whether a Greecefinancial aid package would be worked out in the short-run and fear thatsovereign debt problems are spreading across Europeto other countries is pressuring the Euro overnight.

The lack of clarity is helping to pressure the Euro.Investors were expecting to hear by now that the European Union andInternational Monetary Fund were on the same page with Greece and that abailout plan was getting close to be hammered out. Instead uncertaintycontinues to linger and the Greek financial problems seem far from over.

One of the problems is investors want to know how theborrowing mechanism proposed by EU/IMF a couple of weeks ago works. It’s onething to propose a bailout plan, but apparently another thing to actually knowthe details. It now appears that the original proposal was enacted to try tostem the decline in the Euro rather than fix what ails Greece.

Another issue plaguing a quick solution to the problem is Germany.Clearly Germany does notwant to fund any plan to bailout Greece with the struggling nation’spromise to make even more austere budget cuts than previously agreed uponseveral week’s ago.

As long as the debate goes on, the Euro is expected toweaken. This is twice within the past month where good news triggered ashort-covering rally only to be met by fresh shorting pressure. Overnight thespread between Greek Bonds and German Bunds neared 700 basis points. Thisindicates that fear and uncertainty is driving the markets and that capital markettraders may be in charge of Greece’sfate rather than the EU and the IMF.

Overnight additional information from Portugal showedthat the cost of insuring its debt also widened. This is causing more uncertaintyand leading to speculation that the Euro is on a path that could eventuallydestroy the structure of the main European currency.

Look for traders to keep the pressure on the Euro over thenear-term. Volatility will remain high as the Euro will be sensitive to variousnews stories breaking throughout the day.

After looking like it was going to emerge as the strongestcurrency yesterday, the GBP USD is now trading as the weakest overnight. Onceagain the combination of uncertain election news and weaker than expectedeconomic data is helping to pressure the British Pound just a few days afterthe economy appeared to be getting back on track and one day after traders hadswept aside political fears.

Overnight traders are reacting negatively to weaker thanexpected U.K. Retail Sales Growth and mortgage approvals. April retail salesgrowth was reported at +13 but economists were looking for a +15. The number ofmortgage approvals in March rose to 34,905 but lending only rose by 2.4 billionpounds. This was the smallest increase since July 2009 and indicated thehousing market was still a drag on the economy.

In addition to the economic news, it was reported thatanother election poll shows that the election is too close to call and that itappears that there is still no clear leader. Without a majority leader in thepolls investors are uncertain whether parliament will be able to agree on theaustere measures needed to shore up the country’s budget.

The weaker Euro and British Pound are helping to drive downdemand for higher risk assets. This is helping to put selling pressure oncommodity-linked currencies such as the Canadian Dollar, Australian Dollar andNew Zealand Dollar. Weaker global equity markets are helping to drive upinterest in the lower-yielding Japanese Yen.

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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