Uncertainty over how Greece's debt will be tackled keeps investors on edge

EURO TRADING:THE EURO eased yesterday, pulling away from a key chart resistance as uncertainty over how Greece's debt crisis will be tackled kept investors on edge, while the dollar stabilized following a slide late last week.

With trade lacklustre due to holidays in the UK and the US, analysts expected the euro to trade below its 55-day moving average of $1.4326.

The single currency, which was last down 0.3 per cent at $1.4272, also faces resistance near $1.4369, the top of the cloud on the daily Ichimoku chart, a technical analysis tool popular among traders. Stops are said to be lurking above $1.4350 with light bids seen below $1.42, traders said.

“The market is a bit hesitant about picking up the euro and take it past the mid-May highs of $1.4345 given uncertainty whether Greece will receive its next (aid) tranche from the IMF/EU and whether it can fulfill all the requirements,” said Niels Christensen, FX strategist at Nordea.

“There is a bit of tug-of-war going on between the euro and the dollar with (recent) softer-than-expected US data hurting the dollar.” Greek government bond yields rose and yield spreads over German Bunds widened after European Central Bank board member Lorenzo Bini Smaghi warned of the dangers if Greece were to default on its debt. He said it was a fairytale to think that Greeces debts could be restructured in an orderly way.

Over the weekend German weekly magazine Der Spiegel fanned fears that Greece might not receive the next tranche of its EU/IMF bailout, saying Athens might have missed all fiscal targets set by its lenders. Greece and the IMF denied the report and EU officials said they were working on a second bailout package that will avert a potential Greek default.

European Union and IMF officials are expected to deliver their progress report on Greece’s debt sustainability probably late this week. As that will signal whether Athens gets the next tranche of its bailout, euro bulls are likely to stay on the sidelines given the uncertainty. If Greece fails to get funds, it faces the possibility of default over the summer.

Latest data from the US Commodity Futures Trading Commission showed speculators drastically reduced net long positions in the euro in the week to May 24th.

Still, speculators were carrying a small net long position, which meant some traders are expecting a rise rather than a fall in the euro/dollar. – (Reuters)