Euro Rebounds after Merkel Comments, Trichet’s action

The Euro rebounded overnight after German Chancellor Angela Merkel presented her aid package plan for cash-strapped and debt laden Greece. Short covering turned the Euro around after Merkel said she supports loans from the International Monetary Fund and other European nations as a last resort if all other means of support fail and the country faces default.

European Central Bank President Trichet also contributed to the turnaround in the Euro by extending the bank’s emergency lending rules. Earlier in the year, Trichet said the central bank would not ease its collateral policy for the sake of a single country. This action gave weaker shorts and excuse to pare their positions.

Although these actions helped support the Euro overnight, there is still no indication that a solid bottom is in place and that the trend is getting ready to turn higher. The EUR USD could trade under volatile conditions today as news from the European Union summit meeting is likely to leak throughout the day.

The GBP USD is seeing a slight rebound this morning after a report showed that U.K. retail sales were stronger than expected. This report is a sign that the economy is slowly improving which is in line with expectations for a “bumpy” recovery. The key area the British Pound has to recover is 1.5010 to 1.5080. Otherwise, the trend is likely to continue down as the U.K. faces political uncertainty and the threat of a possible credit rating cut.

The trend turned up in the USD JPY yesterday when this market crossed a key retracement zone and a swing top at 91.08. Stronger demand for higher yielding assets led by a firm U.S. stock market could help to accelerate this market through the February top at 92.14.

The stronger Euro is helping to pressure the USD CHF following yesterday’s test of a retracement zone at 1.0703 to 1.0749. The action so far this morning indicates the possibility of a closing price reversal top. The inability to rally to a new high after the Euro reached a new low for the year could be a sign that the Swiss National Bank may be easing a bit on its intervention. In addition, recent talk has hinted about the possibility of an interest rate hike.

The weaker Dollar and stronger demand for higher yielding assets such as gold and crude oil is helping to pressure the USD CAD. Today’s break is occurring following the normal 3 day rally after last Friday’s closing price reversal bottom. Short-term, this market could find some minor support at 1.0171 to 1.0144.

Easing concerns over risk overnight has helped the AUD USD and NZD USD mount a strong turnaround. Both markets are reacting positively to a turnaround in demand for riskier assets. A strong rally in the U.S. equity markets today is likely to drive these markets higher.