Friendly comments from European Central Bank President Trichet helped turn the Euro around after trading under pressure in Europe and Asia. The early session weakness was created by speculation that Greece was getting ready to default on its debt. Greek Bond and German Bund spreads have widened significantly this week indicating that traders were taking protection against the possibility of a collapse of the Greek financial system. Traders cited the implementation of austere financial measures as the main cause of the developing crisis.
The Euro began to stabilize close to the release of this morning’s ECB Policy Statement then began to rally once Trichet began to speak. During his monthly press conference, Trichet dismissed the prospect of a default by a financially strapped and debt-ridden Greece. Trichet then helped the Euro erase all of its earlier loss when he stated that the recently agreed upon financial plan designed to bail out Greece was a “workable statement.” He also said it represented a “serious commitment” to lead Greece out of its financial dilemma. He concluded his statement by saying default “is not an issue.”
His statement instilled confidence in some traders, forcing weaker traders to cover their short positions. Trichet tried to calm the markets by telling investors that if the European Union acts as one unit, it should be able to offer Greece a more favorable loan rate then the open market. Upon hearing this statement, the Bond/Bund spread began to narrow. This indicated that investors were buying what Trichet was preaching and a little confidence was restored to the market.
Although today’s rally was impressive, it did nothing to change the trend. Furthermore, the fundamentals continue to remain weak. Some bears insist that despite having the EU and International Monetary Fund backing, the recent fears of default have done nothing to reassure investor confidence that a viable solution can be worked out. Technically, it looks as if the Euro may have enough upside momentum to trade back to 1.3436.
The GBP USD finished higher and in a position to regain a key 50% level at 1.5297. Taking out this level will also trigger a breakout over a major downtrending Gann angle. Officially, the main trend will not turn up until the last main top at 1.5381 is violated.
Fundamentally, the turnaround in the Euro helped trigger Thursday’s short-covering rally. In addition, there may be some positioning evening ahead of the May 6th U.K. elections. Some traders are betting that there will be a majority winner in this election and that the possibility of a hung parliament will be diminished.
Shortly before the opening of the New York Forex Session, the Bank of England announced that interest rates would remain at near historically low levels. In addition, the BoE left its quantitative easing measures unchanged. Some traders felt that the central bank would either expand or extend this program. Analysts are now saying that the BoE refrained from making any changes because of the upcoming election on May 6th.
Local: 312-896-3930
Toll Free: 800-971-2440
Email: Info@BrewerFX.com
Website: www.BrewerFX.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
