Greek Struggles Pressure Euro; May have to Turn to IMF for Help

The U.S. Dollar finished higher versus most major currencies with the exception of the New Zealand Dollar. Fear that Greek fiscal problems may flare up once again sent investors scurrying out of the Euro and into relatively safer currencies.

The U.S. Dollar finished higher versus most major currencies with the exception of the New Zealand Dollar. Fear that Greek fiscal problems may flare up once again sent investors scurrying out of the Euro and into relatively safer currencies. Nervous investors removed risk from the equation overnight and continued this trend throughout the day. Worries that Greece would not get the aid from the European Union helped to wipe out in two days a little more than half of the recent rally

The break in the Euro started late Wednesday when news came out that the political party representing German Chancellor Merkel said that a bailout was unlikely and that Greece may have to seek aid from the International Monetary Fund. This weakened the Euro, forcing a lower close. This news then spilled over into the markets overnight, putting pressure on higher yielding currencies while helping to drive traders into the Dollar for safety.

The EUR USD weakened further throughout Thursday morning before downside momentum accelerated shortly before the mid-session. Comments from the Greek Prime Minister Papandreou warned that his country would be forced to go to the International Monetary Fund if the European Union doesn’t come up with aid. This ultimatum seemed to upset long traders. Some traders are saying Papandreou is poised to attempt to go it alone if necessary.

Greece isn’t asking for money, but needs help because it is too expensive for it to borrow in the open market. The key to sustaining the developing rally will be this market’s ability to attract buyers in the retracement zone at 1.3628 to 1.3584. If this doesn’t happen, then look for the recent bottom at 1.3440 to fail.

The British Pound was under pressure throughout the day in light trading activity. Earlier in the week a rally was triggered by better than expected U.K. Initial Claims and news that the Bank of England Monetary Policy Committee had voted unanimously at its last meeting to leave its quantitative easing program unchanged.

On Thursday this market could not follow-through to the upside as falling demand for risky currencies limited interest in the long side. The GBP USD rallied into a retracement zone at 1.5297 to 1.5419 earlier this week. With the main trend down, sellers seemed to be waiting inside this zone. This helped trigger today’s weakness while setting up a possible break back to 1.5080 to 1.5010.

Trader demand for lower risk assets helped to pressure the USD JPY early in the trading session but buyers quickly came in, driving this market into a downtrending Gann angle at 93.75. Aggressive traders failed to break through this important resistance point and the Dollar/Yen began to sell-off when U.S. stock indices weakened. The indecision of the stock market held this market in a range for most of the day. Clearly the next move in the Dollar/Yen will be dictated by the direction of the stock market.

Stronger demand for lower yielding assets encouraged some light short-covering in the USD CAD. The failure to reach a new low for the year in Thursday’s session indicates that traders may be getting ready to begin aggressively bailing out of their shorts. The charts indicate there is room to the upside for a retracement if oversold conditions prevail. Furthermore, although many traders feel that parity is going to happen, many refuse to get aggressively short at current levels. At a minimum look for a retracement to the old bottom at 1.0205. Regaining this price level could force more aggressive short-covering.

The Canadian Dollar has been strong because traders believe the Bank of Canada is likely to raise interest rates before the Fed. In addition, stronger gold and especially crude oil have been helping to pressure the Dollar/CAD. Although conditions may be oversold, downside pressure continues to indicate that a test of the July 15, 2008 bottom at 99.74 is likely over the near-term.

The USD CHF finished higher but well off its high. The weaker Euro was the catalyst behind today’s rally. A collapse in the Euro will increase the likelihood of an intervention by the Swiss National Bank. Earlier in the week, this market found support after completing a 50% retracement of the 1.0130 to 1.0897 range. This price level was 1.0513. The market stopped at 1.0506. The developing chart pattern suggests a short-covering rally back to 1.0701 to 1.0750 is likely.

Lower demand for higher yielding currencies helped to weaken the AUD USD and limit gains in the NZD USD. The Aussie traded inside of Wednesday’s range indicating that traders were more concerned about the stock market rather than the risky situation in Greece. If selling pressure prevails then look for a break back to at least .9100.

The New Zealand Dollar closed higher but inside of a potential resistance zone at .7124 to .7199. Profit-taking could start anytime if sentiment shifts toward risk aversion. As long as this market holds the lower end of the range, it has a chance to hit .7199 by March 22nd to 23rd.