EUR/USD Weekly Technical Outlook

EUR/USD's rise from 1.3969 extended further to as high as 1.4624 last week and remained firms. As noted before, pull back from 1.4938 should have completed at 1.3969 already. Initial bias remains on the upside this week for retesting 1.4938 first. Break will confirm up trend resumption for 1.5143 resistance next. On the downside, below 1.4450 minor support will turn bias neutral and bring consolidations before staging another rally. In the bigger picture, EUR/USD is still trading above medium term trend line support from 1.1875 (now at 1.3557) and thus, rise from there should still be in progress. We'd continue to favor the bullish case that correction from 1.6039 has completed with three waves down to 1.1875 already and. Above 1.4938 will target 1.5143 resistance first. Break will affirm the bullish case of long term up trend resumption for another high above 1.6039. However, sustained trading below the mentioned trend line support will indicate that there should at least be one more medium term decline, possibly for below 1.1875, before correction from 1.6039 completes.

In the long term picture, correction from 1.6039 might have completed at 1.1875 already. Meanwhile, up trend from 2000 low of 0.8223 might be resuming. Break of 1.5143 resistance will affirm this case and should pave the wave through 2008 high of 1.6039 to 61.8% projection of 0.8223 to 1.6039 from 1.1875 at 1.6705.

Greece to ask banks to boost capital ratios: report

The Bank of Greece, the country's central bank, plans to ask banks to boost their capital adequacy ratio to ease market fears over the impact of a haircut on Greek government bonds they hold, a Greek newspaper said on Sunday. Battered by the country's debt crisis, Greek lenders have lost access to interbank funding and became dependent on the European Central Bank (ECB) for liquidity. Central bank authorities want to gradually wean them off this facility. "The head of the Bank of Greece, after the results of stress tests at the end of June will ask banks to strengthen their Core Tier 1 ratios," Kathimerini newspaper said, citing banking sources. The minimum ratio of Core Tier 1 equity and reserves capital to risk-weighted assets the central bank will require will depend on the haircut assumption it will make as regards bank's holdings of Greek government bonds. It said the central bank believes a stronger equity base may make banks' return to wholesale funding markets easier and limit their recourse to eurosystem facilities as Athens implements a fiscal plan agreed with its international lenders. So far, National Bank and Piraeus Bank have already boosted their capital with cash calls and EFG Eurobank has sold most of its stake in Polish subsidiary Polbank to Raiffeisen. Alpha Bank also plans a convertible bond and a rights offering of up to 2.5 billion euros and will seek shareholder approval at its June 21 annual meeting. Banks that find it hard to beef up their capital to meet the new requirement may have to turn to the Financial Stability Fund (FSF) -- a 10 billion euro safety net set up to support the country's lenders, the paper said. With rising bad loans, continued sovereign debt downgrades and a protracted recession taking a toll on Greek banks, authorities set up the FSF to be ready to provide capital. Funded in stages up to 10 billion euros, the FSF is part of a 110 billion euro emergency loan package that debt-laden Greece secured from the IMF and its euro zone partners last year to avoid default. Banks can get capital injections by issuing preferred shares to the FSF. ECB funding to Greek banks reached 87.9 billion euros ($128 billion) in March, easing 2.8 percent from the previous month. ECB funding almost doubled to 97.6 billion euros in 2010.

EUR/USD Technical Outlook: Euro Rises Most Since January as Officials Increase Greece Financial Aid

The euro gained the most against the dollar in four months this week after Greece was given more assistance to address its debt crisis, boosting confidence the region’s nations will be able to meet their obligations. Europe’s shared currency reached a four-week high yesterday after Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said they agreed to pay the next installment to Greece under last year’s 110 billion-euro ($161 billion) bailout. The U.S. currency dropped to a record against the Swiss franc after the jobless rate unexpectedly rose to 9.1 percent. European Central Bank policy makers may consider increasing interest rates when they meet next week. “People are taking the package as a positive factor,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. “Combined with the relative performance of the data out of the U.S. versus Europe, that has been a positive for now for the euro.” The euro rose 2.2 percent to $1.4635, from $1.4319 May 27, and touched $1.4643, the highest level since May 5. It was the currency’s biggest weekly gain since Jan. 14. It added 1.6 percent to 117.48 yen, from 115.67 last week. The dollar dropped 0.6 percent to 80.34 yen, from 80.80.

Peer Gains

The euro was the biggest weekly winner against nine other currencies of developed nations measured by the Bloomberg Correlation-Weighted Indexes. It rose 1.6 percent, followed by a 1.2 percent gain in the Swiss franc and a 1.1 percent advance in the Norwegian krone. European Union and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s bailout, paving the way for an upgraded aid package that includes a “voluntary” role for investors. Greece’s government said a review of the country’s economic progress concluded “positively.”