Dollar Mostly Heavy, Euro Optimism, Positive Technicals

The US dollar is mostly lower, led by the euro.  The news stream has turned more positive regarding Greece. 

First reports suggest that part of the conditions for new aid will likely include a loss of sovereignty.  Previously, Greece's statistical collection agency had to have a Eurostat representative.  Now it seems that European representative may be included into Greece tax collection and privatization efforts. 

Second, there are also reports suggest that the ECB/IMF/EU are prepared to make some concessions too.  This could include a lower upper limit for the VAT of 20% rather than 23%.

Third, is the Wall Street Journal article citing unnamed officials suggesting that Germany may back down on demanding private sector participation.    Yet public comments over the past several weeks have illustrated that Germany was more aligned with the ECB in reaction to Juncker's reprofiling suggestions. 

Fourth, insight gleaned from game theory and the brinkmanship tactics employed suggested that after pushing Greece to the edge of the abyss, they had to circle the wagons and avoid a catastrophe. 

Technical conditions had already begun improving at the end of last week.   We noted sterling's leadership and the 5 and 20-day moving averages crossed positively yesterday and euro is set to cross tomorrow.    The large speculative short dollar position that had been built this year have nearly completely unwound and returned to mid-Jan levels.  

That said, the euro has advanced from $1.4070 last Thursday to $1.4425 today.  The $1.4455 area represents a 50% retracement of the slide since the $1.4940 was seen on May 4.    Near term consolidation rather than a follow through euro buying is likely.  Pullbacks toward $1.4340 may be new buying opportunities. 

Sterling is continuing last week's advance.  It is trying to establish a beachhead above $1.65 and may struggle to do so today.   While $1.66 is the next immediate objective, there is potential back to the late April high near $1.6750 in the comine week or two. 

Ratings pressure continues to grow on Japan, with Moody's joining the chorus.  Moody's rating is one notch above Fitch and S&P.  The earthquake, tsunami, and nuclear disaster have generated economic, fiscal and trade shocks.    Yet today's yen weakness is likely more a function of cross rate developments than yen bearishness per se.   Softer than expected Swiss GDP data weighs on franc just as the euro catches a solid bid.