After surging to the upside following the news of a Greece bailout package, gold, crude and equity markets have erased their gains and are now trading lower. The initial reaction to the upside was because of increased demand for higher yielding assets. Upon further review however, investors decided to back off on the notion that the Euro is still facing exposure to Greece’s financial woes.
The Euro gapped higher overnight and soared higher, but has since backed off, leading traders to believe that the gap may be filled before the Euro moves higher. Furthermore, traders are expressing their concerns that Greece may tap the loan money sooner than expected.
June Treasury Bonds and Treasury Notes initially sold off following the Greek bailout announcement but have since given back some of their gains as equities and commodities weakened. The first move represented relief that a bailout plan had been proposed. The short-covering is a sign that there is still fear in the air.
The Euro gapped higher against the Dollar after European nations unveiled their plan to bailout debt-ridden Greece. The surge in the June Euro helped initially to drive up demand for higher yielding currencies while putting pressure on the Japanese Yen.
The Greek rescue package of loans was pegged at as much as 40 billion Euros. The details of the plan reveal that this amount is expected to be treated as a line of credit that Greece can tap as it deems necessary. This plan includes the support of the International Monetary Fund which makes it similar to the plan revealed last month.
After taking austere measures to shore up its finances, Greece has been suffering through severe financial problems as the country tries to adjust to a different way of conducting business. Recently it tried to tap the capital markets for financing, but that proved to be a near-disaster as interest rates soared, driving down bond prices while pushing up the cost of servicing the debt.
Shorts covered on the opening, driving the Euro higher but many traders agree that Greece is not out of the woods yet which means another wave of selling pressure could start as early as Tuesday. On April 13th, Greek will auction Treasury Bills. A failure to trigger demand for these financial instruments could force Greece to tap the funds available through the loan package. This action is likely to push the Euros down once again as traders will see this as a sign that Greece is going to be at the lending window often during this so-called recovery phase.
Technically, the Euro turned the main trend higher on the breakout over 1.3593. The Euro opened at 1.3628 then rallied to 1.3694. Since reaching its peak, the Euro has been under pressure. Shortly before the New York session, it is falling back into a retracement zone at 1.3608 to 1.3543. Traders could try to establish support at the old main top at 1.3593 or try to fill the gap, all the way down to 1.3506.
The lack of major economic reports today mean British Pound traders will be focusing more on the developments in the Euro. Last night, the June British Pound gapped slightly higher in reaction to the news of the Greece bailout package. After penetrating a .618 level at 1.5416, this market has fallen back below this level. The charts indicate that there may be a pull-back to 1.5297 to 1.5294.
The June Swiss Franc rallied overnight as the Euro soared. The market is currently trading inside of a short-term range of .9590 to .9278. Overnight the market stalled inside a retracement zone at .9471 to .9434. Looking at the bigger picture, this market is trading inside of a major triangle formation with .9774 the upside target and .9355 the downside support.
The Dollar is gaining on the Japanese Yen as Greece’s bailout proposal has driven up demand for higher risk assets. The short-term range is 1.0558 to 1.0777 with makes 1.0668 to 1.0642 the next potential downside target.
The June Canadian Dollar is trading lower despite higher crude oil and gold. Late last week, this pair stopped at 1.0022 and formed a closing price reversal top. Based on the short-term range of .9705 to 1.0022, traders should look for a possible break to .9864 to .9826. Fundamentally, Friday it was revealed that Canadian employment fell short of the pre-report forecast. This encouraged weaker shorts to lighten up their positions. Watch for this pair to weaken once .9925 is taken out.
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