After trading in a four-handle range over the past six-trading sessions, the EUR USD finally broke out to the upside as investor tensions eased regarding Greece‘s willingness to restructure its sovereign debt.
Since early May, selling pressure attributed to fallout regarding Greece’s debt woes had weakened the Euro considerably. Investors were dumping risky assets, driving down the Euro in response to the possible re-ignition of the sovereign debt issues that plagued Greece as well as Spain, Ireland and Portugal.
While the International Monetary Fund as well as the European Central Bank were pledging additional financial aid to the country, Germany was pressing hard for Greece to reschedule its debt in an effort to shorten its length. This move would have put tremendous cash flow pressure on the Greek economy as it would have meant paying back larger chunks of its debt at an accelerated pace.
The rangebound action in the Euro over the past week suggested that perhaps a deal to aid Greece may have been in the works as selling pressure subsided considerably. Short-traders seemed to abandon all hopes for a lower Euro after it was reported this morning in The Wall Street Journal that European leaders will decide on a new Greek financial aid package by the end of June. Traders reacted by buying the Euro, increasing bets that the total debt restructuring plan had been abandoned.
The lifting of the restructuring plan restriction is going to allow traders to focus on the key driving force behind a stronger Euro versus the U.S. Dollar that is the favorable interest rate differential. As long as the European Central Rank is taking a hawkish stance while the U.S. Federal Reserve remains soft on interest rates, investors are going to continue to favor the long-side of the EUR USD.
This morning’s report showing a rise in German retail sales in April as unemployment fell below 3 million for the first time in nearly two decades are strong signs that the interest rate differential will continue to favor the Euro as it provides additional fuel for the ECB to raise interest rates for a second time in three months.
Technically, following a light trade on Monday, May 30 due to the U.S. holiday, the EUR USD surged to the upside, taking out the recent swing top at 1.4345 and changing the main trend to up on the daily chart for the first time since May 5.
Gann analysis suggests this currency pair is currently moving at a rate of approximately .008 per day based on the steep angle at 1.4449. The market is also being guided by additional Gann angle support at 1.4209, moving .004 per day. A downtrending resistance angle comes in at 1.4560 today. The crossing of the two main angles makes 1.4529 to 1.4540 a potential upside target zone on Wednesday, June 1.
Based on the big picture range of 1.4940 to 1.3939, the retracement zone at 1.4454 to 1.4569 is also a potential upside target. Intraday traders should watch for a potential technical bounce following a test of the 50% level at 1.4454.
