Euro Firms after Greece Announces More Budget Cuts

The Euro is firming overnight after Greece announced more budget cuts in an effort to sway the European Union into approving its bailout package.

The Euro is firming overnight after Greece announced more budget cuts in an effort to sway the European Union into approving its bailout package. The new plan includes higher taxes and pay cuts for government officials. Greece has been making an effort to shore up its fiscal deficit in order to convince the EU and investors that it is committed to taming its budget crisis. At the same time, there is talk that Greece is prepared to go to the International Monetary Fund if the EU fails to come through with sufficient aid.

Technically, the EUR USD confirmed Tuesday’s closing price reversal bottom with a follow-through rally last night. The current rally is getting close to the last main top at 1.3692. A trade through this level will turn the main trend to up for the first time since December 7th, 2009. With a record amount of short positions against the Euro, a change in trend and a resolution to the Greek budget crisis could trigger the start of a massive short-covering rally back to 1.4000. Gains could be limited if shorts don’t budge and if the developing deficit crisis in Spain flares up. Talk is circulating that hedge funds may face new regulations. If this story proves to be true then look for the short-covering rally to begin soon.

The GBP USD is gaining back some of its loss from earlier in the week because of the firmer Euro and on speculation that capital will stay in the U.K. if Prudential PLC’s takeover of AIA Group, Ltd. is delayed. The developing move looks like short-covering rather than trend changing. The poor state of the U.K. economy, its budget deficit and a dovish monetary policy should continue to keep a lid on appreciation. Furthermore, concerns that the Labor Party may gain a majority stake after the upcoming election should continue to keep downside pressure on the British Pound.

The Dollar is trading slightly lower against the Yen overnight as traders remain a little tentative that a resolution to the Greek budget crisis will be reached soon. After failing to regain a key 50% price level at 89.30, downside pressure helped push the USD JPY toward the .618 support level at 88.24. Buying came in last night after a break through the last bottom at 88.55 failed to encourage more selling pressure. A closing price reversal bottom today or regaining the 50% level will be a sign that a short-term bottom has been reached.

The rally in the Euro is helping to pressure the USD CHF. Traders are selling this pair in anticipation of a deal between Greece and the European Union. A stronger Euro reduces the need for the Swiss National Bank to intervene to protect its economy. The charts indicate that downside pressure could take this market down to 1.0513 over the near term.

The USD CAD is trading lower, but inside of yesterday’s range. Downside pressure is coming from a pick-up in demand for higher risk assets as investors feel more confident that Greece and the European Union will reach a bailout agreement. Yesterday the Bank of Canada voted to leave interest rates unchanged but left open the door for a rate hike after June if the economy continues to heat up. Earlier in the week it was reported that Canadian GDP grew by 5.0% versus pre-report guesses of 4.2%.

Despite a 25 basis point rate hike by the Reserve Bank of Australia on Tuesday and a slight pick-up in demand for higher risk assets, the AUD USD is trading lower. Last night’s rally stopped short of taking out the most recent swing top at .9070. Buying pressure dried up as the market neared this level. Additional resistance is coming from the .618 retracement level at .9042. With risk sentiment shifting, look for buyers to step in following a short-term retracement, provided .8953 holds as support.

The NZD USD remains under pressure because of concerns over the weakening economy. The stronger Australian Dollar and signs that the Euro may begin rallying are also putting downside pressure on the Kiwi.

Besides news regarding the debt crisis in Europe, Forex traders will be focusing on today’s Challenger jobs report and the ADP private sector jobs report for direction. Traders expect the ADP report to show a loss of 20,000 jobs. An amount greater than 20,000 should support the Dollar as it will indicate a weaker economy. Later in the day, the Fed releases the Beige Book of economic conditions.