Euro Mounting Comeback as Greece Tensions Ease

A combination of optimism in the Euro Zone and dovishcommentary from the Federal Reserve is helping to pressure the U.S. Dollarovernight.

A combination of optimism in the Euro Zone and dovishcommentary from the Federal Reserve is helping to pressure the U.S. Dollarovernight.

The EUR USD is mounting a strong comeback as traders havebecome more optimistic that Greeceand the European Union are close to agreeing upon a loan bailout package. Althoughinvestors continue to remain nervous about the dire economic conditions in theEuro Zone, they do feel that the worst may be over at least in the short run. Thisnews is encouraging a few of the weaker traders to cover their short positionswhile at the same time attracting aggressive bottom-pickers. The main concern among investors is the lackof clarity and detail regarding the pending agreement. Now that optimismappears to be returning, the lack of fresh positive news could help to limitgains.

Technically the Euro posted a daily closing price reversalbottom on Wednesday. This type of formation usually leads to a 2 to 3 dayretracement. Based on the current chart formation, watch for a short-term rallyto 1.3402.

The GBP USD is rebounding after trading lower for severaldays. A combination of a weak economy and election concerns have beenpressuring the Sterling.Traders have also been concerned that the fiscal problems in the Euro Zone haveset up the be the next country to have debt problems.

The main concern among investors this week has been theupcoming May 6th election. Recent poll results have shown that the election istoo close to call. This means that without a majority party, the chances for ahung parliament have increased. Under this condition, it may be difficult forthe government to come up with a solution to its budget deficit. This couldeventually mean a debt rating downgrade for the U.K.

The stronger Euro is pressuring the USD CHF. The strongerthe Euro becomes the less likely the Swiss National Bank will intervene toweaken its currency. The SNB is mandated to support the Swiss Franc in aneffort to protect its export business.

The outlook for higher equity markets and a general increasein demand for higher risk assets is helping to underpin the USD JPY today. Tradershave also been pressuring the Japanese Yen this week because of concerns overgrowing Japanese debt. The situation in Greece has led investors to believethat a debt rating cut is likely if global economic conditions continue toworsen.

Rising crude oil and increased demand for higher yieldingassets is helping to pressure the USD CAD. Yesterday’s Fed statement saidinterest rates would remain low for “an extended period”. The Bank of Canadasaid recently that interest rates would be raised sooner than expected. Withthe interest rate spread between the two countries likely to widen, investorsare moving money into the Canadian Dollar to take advantage of this interestrate differential. Losses could be limited if gold breaks sharply.

Higher than expected inflation and soft Fed comments, arehelping to drive the AUD USD higher. On Wednesday, the Australian Dollaradvanced from a four-week low after a government report showed inflation almostdoubled during the last quarter. This triggered a short-covering rally onrenewed talk that the Reserve Bank of Australia would raise interestrates at its May meeting.

After holding steady throughout the day, the Aussie surgedto a new high for the day after soft comments from the U.S. Federal Reserveindicated that interest rates would remain at historically low levels. With theFed holding rates steady and the RBA likely to raise rates, the interest ratedifferential remained in favor of the Aussies.

The Aussie is surging overnight, having already overtaken50% of the recent break while putting itself in a position to test the .618price at .9291. Regaining a pair of uptrending Gann angles is also a bullishsign, but this market still has to take out the swing top at .9337 in order tosignal a change in trend. At this time, the current rally may only beshort-covering and position evening ahead of next month’s RBA meeting.

The NZD USD is trading higher this morning on increaseddemand for higher risk assets. Late yesterday, the Reserve Bank of New Zealandleft interest rates unchanged at 2.50% while releasing a statement which saidit expects to be removing stimulus in the coming months provided the economycontinues to grow. Traders had been expecting a more hawkish statement, butnonetheless are supporting the Kiwi this morning. Today’s rally is being led byspeculation that the RBNZ will raise rates before the U.S. Federal Reserve.