Thursday, July 21, 2011

Euro-Zone Governments New Aid Package for Greece

Previous session overview
The euro soared against the dollar Thursday after euro-zone leaders outlined a plan to bail out debt-laden Greece, lifting investors' hope for a resolution and decreased contagion risks. 

The common currency leapt more than one cent to USD1.4334 against the dollar, from USD1.4212 late Wednesday. The euro also advanced against the Swiss franc and Japanese yen to hit fresh session highs. 

Euro-zone governments have agreed to a new aid package for Greece and an overhaul of the currency bloc's sovereign rescue fund that will reduce the debt burdens of Greece, Portugal and Ireland, according to a recent draft of conclusions that will be published after Thursday's summit of euro-zone leaders. The overhaul will extend loan maturities and lower interest rates for heavily indebted euro-zone countries. 

Investors have been wary of the common currency in recent weeks, as fears of contagion risks and uncertainty about a financing package for Greece have dominated peripheral countries' bond markets. Signs of a potential endgame for Greece, however, spurred investors to cover euro-short positions on Thursday. 

The U.S. dollar also suffered modestly against its safe-haven rivals the Japanese yen and Swiss franc, as jitters about ongoing U.S. debt ceiling negotiations weighed on the currency.

The Canadian dollar rocketed higher early Thursday, sending its U.S. counterpart crashing through multiyear lows, as the market sold off U.S. dollars in favor of a host of other currencies. The U.S. dollar was at CAD0.9438, lows not seen since November 2007, after U.S. data showed a steeper-than-expected rise in U.S. jobless claims.
Market expectation
EURUSD could get to USD1.45, say analysts, over the next couple of days if the EU summit deal looks somewhat like the preliminary reports. The analysts say relief that the summit event and associated short-term uncertainty has passed could trigger a relief and short-covering rally. However, beyond USD1.45 is unlikely as the market ponders longer-term issues and is unlikely to become suddenly euro bullish.

The GBPUSD bullish tone has overcome a short term descendant trend line, coming from May high at USD1.6737, that is now acting as strong support on pullbacks around USD1.6190. Hourly indicators seem exhausted to the upside and point for a limited bearish corrective movement, or at least some consolidation before further gains. 4 hours chart, shows a stronger bullish momentum that supports the bias with 1.6375 as probable top for today in case of further acceleration, report technical analysts.