Euro off highs after Greek vote

Thursday, 23 June 2011 00:00 - - {{hitsCtrl.values.hits}}

Sydney/Singapore (Reuters): The euro ran into profit-taking in Asia on Wednesday after the Greek government as expected won a vote of confidence in parliament, but further losses may be limited as the market’s focus turns to the Federal Reserve and its comments on the slowing U.S. economy.

The Greek government now faces a more arduous task of passing an austerity plan in order to secure a new bailout from the European Union and IMF.

The euro briefly pushed up to around $1.4435 on news of the vote win, but quickly retreated from there and last stood at $1.4368, down 0.3 percent from late U.S. trading on Tuesday.

The single currency’s drop paused near support at $1.4346. That is right where the bottom of the cloud lies on daily Ichimoku charts, a popular technical analysis tool.

The euro will be beholden to headline risks in the near-term, said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

“We are hopeful the threat of default is enough to get the austerity measures to pass, in which case that’ll be seen positive for the euro, but that’s another week away,” Trinh said.

Despite such risks, some market players said the euro’s downside may be limited in the near-term.

The fact that Greek’s parliament passed the confidence vote bodes well for the passage of the government’s austerity plan and related legislation and for Greece receiving needed aid, said Rob Ryan, FX strategist at BNP Paribas in Singapore.

“If you’re a member of parliament today and you vote for the vote of confidence in the government, it’s very difficult to justify turning around and voting against the most significant piece of legislation that everybody knows is on the cards,” Ryan said.

One risk would be if protests in Greece escalate and affect how lawmakers vote, Ryan said. But in the near-term, downside risks to the euro have likely decreased, he added.

In the options market, risk reversals that have been skewed in favor of euro puts on worries about downside risks to the euro may start to see a pull-back, Ryan said.

One-month risk reversals were trading around 2.25 percent in favor of euro puts, down from a peak of roughly around 2.7 percent hit this week, which was the highest since the euro zone’s debt problems reached a crisis point in May-June 2010.

To be sure, not all market players are quite so optimistic despite the Greek government having won the confidence vote.

“I think there was a desire to avoid having to hold a general election, but whether it will be easy for Greece to reach an agreement on specific policy issues is hard to tell,” said a trader for a major Japanese bank in Tokyo.