Euro rises following Greek vote

The euro surged to a three-week peak against the dollar on Thursday, swept higher by a wave of stop-loss buying and extending a rally after Greece moved a step closer to securing international aid.

Dollar-selling by macro hedge funds, a flurry of short-covering in the euro, and traders establishing long euro positions all helped lift the single currency, which extended its gains further after taking out an option barrier at $1.45.

The rise came after Greek lawmakers voted by a clear margin for a five-year austerity plan. The solid margin suggested the government should be able to push through a second package of laws on Thursday, implementing specific budget measures and asset sales.

This would clear the last obstacle to the release of 12 billion euro ($17.3 billion) of emergency loans from the International Monetary Fund and European Union, which are essential to meet debt payments by mid-July.

Traders said the euro could rise further in the near-term, helped by market expectations for the European Central Bank to raise interest rates in July.

?My sense is that even with all of its problems, the euro will attract buying by process of elimination, since it is in rate-rise mode,? said Tsutomu Soma, senior manager for Okasan Securities’ foreign securities department in Tokyo.

?I think there is a good chance we may see a rise close to the mid-June peak near $1.47,? Soma said, referring to the euro’s potential upside over the next month.

The euro climbed 0.5 percent to $1.4498 . At one point, it rose as far as $1.45195 on trading platform EBS, its highest level in about three weeks. Traders cited talk of stop-loss euro bids at levels around $1.4510 to $1.4550.

The euro’s rise over the past couple of days has improved its outlook on the daily Ichimoku chart, a popular technical analysis tool. Euro/dollar has risen above the Ichimoku cloud, a move that is considered to be a bullish signal.

Ahead of the euro’s early June peak right near $1.47, one possible upside target sits at about $1.4550, roughly a 76.4 percent retracement of the euro’s drop from the high near $1.47 down to its mid-June trough around $1.4070.

The euro also faces resistance near $1.4540, trendline resistance drawn off peaks hit in early May and early June.

?Heading into the end of the week we may see some squaring up. However, the euro should remain well supported heading into the July 7 ECB meeting, where we expect the ECB to hike by 25 basis points,? said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.

One uncertainty is whether the Greek government will be able to actually implement the deeply unpopular cuts required to meet a tight schedule imposed by the EU and IMF before the next round of bailout funds are needed.

For now though, the outcome has helped soothe market worries, giving investors a reason to get back into risk assets.

A trader for a Japanese bank in Tokyo said some market players were spotted taking new long positions in the euro.

?We’re again in a ?risk-on? mood and with the euro and commodities currencies on the rise, cross/yen may also be chased a fair bit higher in coming weeks,? the trader said.

Top of the shopping list for them were commodity currencies, which rallied across the board. The Australian dollar rose 0.6 percent to $1.0737.

The Aussie added to gains made on Wednesday, when it climbed above resistance at its 55-day average near $1.0660 and the top of the daily Ichimoku cloud near $1.0650, possibly setting itself up for a further rise.

The New Zealand dollar hit a 26-year high of $0.8320, and was last up 0.5 percent at $0.8292.

Not surprisingly, the U.S. dollar was among the main casualties. The dollar index, which tracks its performance against a basket of major currencies, touched its lowest in more than two weeks at one point, and last stood at 74.342.

The dollar fell 0.5 percent to 80.41 yen, with traders citing active dollar-selling by Japanese exporters.

The dollar slipped 0.4 percent versus the Swiss franc to 0.8313, nearing a record low of 0.8276 hit on EBS this week.

Weakness in the dollar came as President Barack Obama challenged U.S. lawmakers to make progress on a budget deal to avert a possible default in early August.

A recent surge in U.S. Treasury yields and the end of the Federal Reserve’s quantitative easing (QE2), or asset-buying programme, gave little support to the greenback.

With Greece likely to fade into the background after Thursday’s vote, market attention is set to turn to economic data including a raft of manufacturing surveys from the major economies including the U.S. ISM report on Friday.

[Reuters]