Greek Woes Push European Currencies Lower, Yen Higher

Sharp pressure on Greek debt instruments and, to a lesser extent, the other weak credits in the region,is pressuring the European currencies lower, with the euro stopped cold in its tracks before $1.4100 was reached and is now headed toward the lows. Optionality struck near $1.40 may try to contain the down ticks for the next hour, but a break of this psychological threshold is looking increasing likely. Last week's negative dollar news in the form of the new banking regulation proposals and the uncertainty over Bernanke's confirmation have eased allowing the negative news from Europe (and anxiety over Chinese tightening of bank lending) re-assert themselves as the dominant force. While momentum players already appear to be participating in the move, the medium term investors may wait for a break of the $1.3970-80 to ensure that the $1.40 has really broken.

Although Japan's rating outlook was cut yesterday by a rating agency, the yen's recovery from the nearly 10% decline from late Nov through early Jan continues. The JPY89.30 area corresponds with a 50% retacement and the next retracement objective is closer to JPY88.20.