Forex News – Euro’s rebound may be short-lived

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The Euro is holding steady against the dollar after rebounding from a two-day decline. Late last night, news tricked out that Greece had reached a deal with the EU and IMF on an austerity plan that would bring it one step closer to securing much-needed financial aid.

EURUSD gained over 150 pips from the Thursday low of 1.4126 to peak at 1.4276.

But the Euro lost momentum from its fast rebound, forming a range ahead of the weekend.

“Part of the reason the euro’s bounce was so fast (on Thursday) was probably because there was some position unwinding ahead of the weekend,” says Tsutomu Soma, senior manager for Okasan Securities’ foreign securities department in Tokyo.

“I think you would have to put a question mark on whether it can keep extending its bounce,” Soma said.

The burst of good news last night was a temporary shot in the arm for the ailing Greece, but investors soon were reminded of the lingering mountain of debt and that despite agreeing on an austerity plan with the troika last night, the tough measures including deep spending cuts and more tax hikes must still be passed by the Greek parliament at a vote next week. So there is now a question mark on whether Papandreou will again succeed in the vote in Parliament to pass these measures.

“The potential for further uncertainty suggests that the euro could pull back as quickly as it has rallied on the first sign of trouble,” said David Rodriguez, strategist at DailyFX.

“The market is of course worried about Greece, but because yields between bonds of other peripheral euro zone countries and German Bunds widened on Thursday, people were reminded about the serious risk of contagion,” said a trader at a Japanese bank in Tokyo.