Although fears surrounding the Greek debt situation could ease on expectations of formal support as negotiations will continue, there is likely to be increased unease surrounding the other Euro-zone economies. The Euro will certainly not be able to secure sustained relief while spreads widen. There will be some expectations of a small shift in the Fed's language at this week's meeting and there is likely to be a greater reluctance to use the dollar as a funding currency. Overall, the Euro is liable to stall below the 1.34 region against the dollar with a move back to the 1.32 area over the next 36 hours while an eventual move to 1.30 is still realistic.
Following a bout of rumours, the Greek government announced on Friday that it had formally applied for assistance under the EUR45bn EU/IMF aid package agreed last month. Following the announcement, there was some relief as Greek yield spreads over German bunds narrowed. Underlying confidence was extremely fragile as structural fears remained a key background focus.
The US new home sales data was stronger than expected with an increase to an annual rate of 411,000 for March from a revised 324,000 the previous month. The durable goods orders data was mixed as a headline decline in orders was offset by a sizeable underlying increase as a significant decline in aircraft orders undermined the headline figure. There was some speculation that the Fed would move to a tightening bias at this week’s FOMC meeting and change the rhetoric at least slightly, but the dollar was unable to draw much benefit against European currencies.
The Euro found support below 1.33 in the US session and a round of short covering pushed the currency to highs around 1.3380. The rally was not sustained as there was a renewed widening in European yield spreads during the European session while the Greek central bank governor warned over the risk of more dramatic developments within Europe.