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Market Update - EUR USD 13th April 2010
The Euro was given a shot in the arm over the weekend as Euro zone countries firmed up a rescue package for ailing Greece. Tensions came to a head last week as the yield demanded by investors on Greek government debt rose above that of Icelandic debt for the first time, and traders became nervous after Athens failed to sell a small (€1bn) secondary bond issue hastily arranged after a successful €5bn auction. The €30bn aid pledge helps to reassure investors that in the short term Greece will not be allowed to fail.
That helped the Euro rise sharply on Sunday night's open, having tested ten month lows late last week. It was a double whammy for the US dollar, which suffered as investors moved money out of "safe haven" assets following the Greek news. The Euro's rally hit a stumbling block early when investors looked past the short term relief and considered which other Euro zone countries could be next in line for financial difficulty. Portugal's government debt was downgraded just two weeks ago, and Italy and Spain are widely cited as other countries that may increasingly struggle to sell their debt in order to finance budget deficits. That Greece is not drawing on the aid immediately gives them an opportunity to approach bond markets today to see if they can raise money themselves; the aid package is a backstop against this auction failing to attract bidders.
The US dollar fell on Friday after worse than expected jobless claims data. With no significant change in interest rate expectations on either side of the fence, the market is likely to continue to focus on the Greece story. The Euro may find it difficult to make sustained gains.
The technical outlook has improved for the Euro, but the trend is still down, and we would need to progress above 1.3820 to change that. The 1.3250 lows have been tested twice in the last few weeks, and there is scope for further upside if the market can close above the key 13590 level today. That would complete a so called "double bottom" pattern, a formation often referred to by technical traders as being predictive of further upside.
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