Euro bounces on Greece rescue reports, Aussie up

By Anirban Nag

SYDNEY (BestGrowthStock) – The euro extended gains on Wednesday, having earned a reprieve in the previous session, as investors unwound short positions in the single currency on reports that a rescue package for Greece was in the works.

Growth-linked currencies like the Australian and New Zealand dollars were also higher, as appetite for riskier assets such as stocks (.SPX: ) and commodities (.CRB: ) received a shot in the arm from the Greece news.

“As Europe moves closer to ring-fencing Greece, bear market hedges make less sense,” strategists from JP Morgan said in a note.

“If European governments deliver on reports of bilateral assistance to Greece, and if Europe imposes conditionality akin to an International Monetary Fund program, then the euro/dollar will have seen a near-term bottom.”

The euro climbed to $1.3795, having jumped nearly 1 percent on Tuesday, its best daily performance in more than two months. Near-term resistance for the euro is seen at around $1.3850, its February 1 low.

A senior German ruling coalition source told Reuters euro zone governments had decided in principle to help Greece. Concerns about Greece’s public finances and the potential contagion effects have hit the euro and soured risk appetite in recent weeks.

European Union leaders will hold a special summit on the economy on Thursday and speculation is swirling that a package will be hammered out soon for Greece. EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the situation in Greece was difficult and a common concern for the EU.

The euro also moved higher on the yen, rising to 123.92 yen from 123.55 late on Tuesday when it gained over 1.3 percent.

Both the U.S. dollar and yen have been the main gainers since late last month on increasing worries that the pace of global growth will slow and that problems plaguing Greece may spread to Spain and Portugal.

As a result, speculators have built record short euro positions and went long on the U.S. dollar and the yen. Traders say the recent bounce in the euro is leading to some unwinding of these positions, pushing down the dollar (.DXY: ) and yen.

The dollar edged up against the yen to 89.79 yen, from 89.64 late on Tuesday when it rose nearly 0.4 percent. All eyes on Wednesday will be on Fed Chairman Ben Bernanke who is expected to outline the Fed’s strategy for tightening.

The prepared testimony will be released at 1500 GMT, even though the congressional hearing has been postponed.

Meanwhile, the Australian dollar held firm just below 89 U.S. cents, having jumped over 1.5 percent on Tuesday. The New Zealand dollar rose to US$0.6959, up from $0.6946 late on Tuesday when it rallied nearly 1.7 percent.

Investing Research

(Editing by Mark Bendeich)

Euro bounces on Greece rescue reports, Aussie up