EUR USD Finishes Sharply Higher but Traders Remain Cautious
The EUR USD finished the day up sharply but backed off its high as traders took a cautious trading approach after several weeks of declines. Short-covering drove this market up on speculation that the European Union had reached a tentative agreement to provide loan guarantees to deficit-riddled Greece. Traders remain nervous about the outcome of the possible agreement. Most are unsure whether this resolution will satisfy Greece’s requirements, or be all-encompassing and include other struggling European nations such as Spain and Portugal.
One key to sustaining stability to the affected Euro Region will be solidarity. The European Union has to show the rest of the world that it is acting as one. Too often during the past few weeks, the EU has appeared disjointed. This type of behavior creates nervousness amongst investors. Although an agreement between the EU and Greece will act to stabilize the Euro by diminishing investor fears, until it can prove that it is acting as one unit, the entire situation could flare up again.
Appetite for risky assets helped drive down the U.S. Dollar on Tuesday. Most of the action was attributed to profit-taking and position adjusting as traders booked profits after several weeks of strength. Speculation that a resolution to the sovereign debt problems in Greece and the neighboring Euro Region had been reached, started in the Euro market early in the session then spread throughout the major currencies. The Dollar did manage a gain versus the Japanese Yen as demand for safety was mitigated.
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