FOREX: Euro Rises to Three-Week High Versus Dollar on Greek Debt, ECB Rate Views

The euro climbed to the highest in almost three weeks against the dollar on prospects the European Central Bank will increase interest rates next week to curb inflation as the risk of an immediate Greek default subsides.

The 17-nation currency strengthened to a 15-month high against the pound amid bets the Bank of England will be restrained in increasing interest rates compared with the ECB. Higher-yielding currencies advanced against the Swiss franc after German financial firms agreed on a draft proposal to roll over Greek debt holdings, according to people familiar with the plan. The Dollar Index weakened for a fourth day, the longest streak since April.

“There’s an element of optimism after yesterday’s vote and amid headlines surrounding Germany even though specifics are lacking,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York.

The euro rose 0.3 percent to $1.4480 at 9:02 a.m. in New York. It earlier strengthened to $1.4521, the highest level since June 10. The euro slipped 0.3 percent versus the Japanese currency to 116.28 yen after advancing as much as 0.4 percent. The dollar fell 0.6 percent to 80.28 yen from 80.78. The euro has gained 0.6 percent against the dollar this month and is up 2.3 percent in the quarter that ends today.

Greece’s Vote

Luxembourg’s Jean-Claude Juncker, who leads a group of euro-area finance ministers, said the Greek parliament’s decision yesterday paves the way for payment of the next aid installment from the region’s governments and the International Monetary Fund. The Swiss franc, a traditional haven from financial turmoil, fell against 14 of 16 major peers. It depreciated 0.3 percent against the euro to 1.2082 and was little changed against the dollar 83.40 centimes per dollar, from 83.42. German firms will commit to providing financing for a Greek aid package and an announcement is planned this afternoon, said people who declined to be identified because the talks are private. The draft could still be changed during a meeting today with Finance Minister Wolfgang Schaeuble and top industry executives, the people said. Even amid the debt crisis, the euro has proved the third best performer this year, supported by the ECB’s first rate rise in three years in April. It trailed only the Swiss franc and the Norwegian krone among 17 currencies.

Euro: Greek Parliament Passes Vote – EUR/USD Still Capped

Yes is the answer. The Greek parliament said “yes” on the first vote of the austerity measures. Violence continues outside the parliament.

EUR/USD now trades at 1.4391. Trading is very very choppy, but the pair stays away from the resistance line it challenged earlier. The vote hasn’t been completed yet, but there is already a majority.

Update: Vote completed. Speaker of the house announcing it. The score is 155:138. Votes went according to party lines, apart from 1 member of the ruling party that voted against, and one member of the opposition that voted for the measures. One member of the ruling Pasok party, Kourouplis, that voted against the measures, was immediately thrown out of the party after the vote. Also the opposition member was kicked out of her party for voting for austerity.Euro/dollar traded just under the 1.4450 resistance line before the vote. It moved up towards this line as it became apparent that the vote will pass: members of the Pasok party moved in line with the government, which also got support from the opposition.

Votes on implementation laws are expected tomorrow.

FOREX-Euro Near Week High on Bets ECB to Lift Rates

The euro was 0.3 percent from a one- week high against the dollar on speculation the European Central Bank will raise interest rates next week even as Greece struggles to avoid a default.

The 17-nation currency traded near a two-week high against the yen after ECB President Jean-Claude Trichet yesterday said policy makers are in "strong vigilance mode," boosting rate- increase expectations. Greece’s parliament today will vote on an austerity package needed to secure more financial aid. The dollar reached the strongest level against the yen in three weeks yesterday as Treasury yields jumped, enhancing the allure of U.S. assets.

“The euro’s got a bit more upside from here," said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. "While we hear a lot about Greece, it’s really a lot of noise because the bottom line is that the European economy is strong enough to get the ECB raising rates. The euro was at $1.4355 at 8:17 a.m. in Tokyo from $1.4371 in New York yesterday, when it reached $1.4397, the highest since June 22. It’s down 0.3 percent against the greenback this month and up 1.4 percent this quarter. The euro may reach $1.44 in the next day and will head toward $1.50 by the end of September, Capurso said.

The euro was at 116.41 yen from 116.58, after reaching 116.67 yen yesterday, the highest since June 14. The dollar fetched 81.10 yen from 81.12. It reached 81.27 yen yesterday, the strongest since June 2.

Anchor Inflation

The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent. The central bank will meet on July 7.

‘‘We’re taking the decision progressively to anchor inflation expectations,” Trichet said at a press conference in Amsterdam following a seminar with central bankers from the Asia-Pacific region. “As far as we’re concerned, we’re in strong vigilance mode,” he said, repeating a phrase the ECB uses to indicate a rate increase is imminent.

Greek lawmakers will vote on the austerity package and again later on a measure to implement it. Prime Minister George Papandreou won a confidence vote in parliament last week by a vote of 155-143.

Treasury 10-year yields gained 10 basis points to 3.03 percent yesterday, increasing the appeal of U.S. bonds to international investors. The difference between 10-year yields in the U.S. and Japan widened to 1.94 percentage points, the most since June 14, according Bloomberg data.

EUR/USD Technical Outlook Remains Volatile Ahead of Greek Vote

The EUR/USD rose above the 1.4300 figure in Asian and early European trade spurred higher by growing confidence that Greek Prime Minister George Papandreou will be able to pass the austerity legislation in Parliament, while economic data from Germany surprised to the upside helping to lift risk appetite. Cable however was mired under the 1.6000 level as weaker Q1 GDP readings and wider Current Account report capped any rally in the pair.

In Greece debate continued ahead of the crucial vote on austerity scheduled for tomorrow, with much of the country now on general strike as unions protested the proposed measures. Some analysts have estimated that the austerity cuts could be as large as 2000 euros per family per year - a massive hit to aggregate demand that will no doubt hurt growth going forward.

Nevertheless, most analysts believe that Mr. Papandreou will be able to squeeze by with a yes vote, aided by the opposition New Democratic party. On Monday ND deputy Elsa Papdimitriou indicated that she may vote for the austerity measures despite the reservations of her party, stating that now was the time to put the good of the nation above party interests.

In economic news German GFK Consumer Sentiment reading for July printed much better than forecast at 5.7 versus 5.3 indicating that the booming economy within Europe's core is having a positive impact on the consumer psyche despite the turmoil created by the peripheral debt crisis. The data showed improvement in all sub-indixes with economic expectations rising to 50.3 vs. 46.1 in May, income expectations climbing to 44.6 from 25.9 while propensity to buy increased to 35.1 vs. 31.5.

The positive news on the consumer sentiment front could translate into better results in German Retail Sales which has been highly disappointing in Q2 of this year, contracting for two out of the past three months. German Retail Sales are projected to rise 0.7% versus 0.3% the month prior. The improvement in GFK Consumer sentiment index also hints at continued strength in German labor markets with unemployment expected to decline another -17K from -8K last month.

The data was not nearly as supportive in UK where the Q1 GDP printed at 1.6% vs. 1.8% eyed while the Current Account blew out to -9.4B vs. -5.0B projected. The breakdown of data showed the first decline in Industrial Production since Q3 2009 while disposable income fell for the second consecutive quarter. The news confirms the downward bias of the BoE and unless Q3 data begins to show marked improvement in overall economic activity the UK central bank is likely to remain stationary for the rest of the year. Cable fell towards the 1.5950 level in the aftermath of the report and threatens to drop through the 1.5900 figure as the day proceeds if risk flows turn negative as appetite for the pair continues to diminish.

EUR/USD Technical Outlook: Elliott Waves Analysis

UR/USD:  Wave (B) ended at 1.5145 and wave I of (C) ended at 1.1876

Although the single currency recovered initially last week, renewed selling interest did emerge as expected (we recommended to sell euro again at 1.4400) and has fallen again from 1.4442, indicated downside target at 1.4150 has been met later last week (with 250 points profit) and price fell to as low as 1.4103 today. We are keeping our view that rebound from 1.3970 has ended at 1.4696 and bearishness remains for another decline later, a break of support at 1.4073 would extend weakness to 1.4000 but break of 1.3970 support is needed to confirm decline from 1.4940 top has resumed and extend weakness towards 1.3900 (50% Fibonacci retracement of 1.2860-1.4940).

Our preferred count on the daily chart remains that a wave (II) from 1.2329 ended at 1.5145 with A-leg ended at 1.4720, followed by wave B at 1.2457, the wave C from there was also a 3 legged move and is labeled as (a): 1.3739, (b): 1.2885, the wave iii of the 5-waver (c) from 1.2885 has ended at 1.4339 and wave iv is a triangle ended at 1.3878 and wave v formed a top at 1.5145.

The decline from there is a 5-waver (C) with minor wave (i) of I of (C) ended at 1.4218 with wave (ii) ended at 1.4580, wave (iii) ended at 1.3267 and wave (iv) ended at 1.3692 and wave (v) ended at 1.1876, this is also the low of wave I of (C) and wave II has commenced from there with (a) leg ended at 1.3334, (b) leg ended at 1.2588 and (c) leg ended at 1.4283 which is only the first set of a complex correction wave II, followed by wave (x) at 1.2860, hence, 2nd wave (a) has ended at 1.4940 and correction in 2nd (b) to 1.3900 (50% Fibonacci retracement of 1.2860 to 1.4940) would be seen.

On the upside, whilst initial recovery to 1.4300 cannot be ruled out, said resistance at 1.4442 should limit upside and bring another decline later. Only a daily close above 1.4498 would dampen our bearishness and prolong consolidation, risk gain to 1.4550/60 and possibly 1.4600. Looking ahead, a sustained breach of 1.4696 is needed to signal the retreat from 1.4940 has ended at 1.3968 and further gain to 1.4800 would follow. Looking ahead, above 1.4800 is needed to signal (b) leg has ended at 1.3968 and bring a retest of 1.4940, otherwise, the (b) leg shall take more time to unfold and another retreat in c leg of (b) would take place.