The Euro and the Loonie were the weakest major currencies in the pre-North American trade as Fitch Ratings announced that it would place Greece on an interim default. The potential interim default, officially dubbed a “restricted default,” comes after Euro-zone leaders announced it would give another €159 billion to Greece, on terms that included getting bondholders to assume part of the cost – the private involvement German lawmakers were seeking.

Fitch announced that it will assign new ‘post-default’ ratings, likely “low speculative grade” to Greece, as new securities are issued to bondholders. Oddly enough, the Greek bailout has inspired confidence in Greek government bonds, with the securities falling near their lowest level in two-months, as there has been some optimism that the Euro-zone’s leaders have created a plan that will indeed prevent contagion from spreading to other periphery nations, most notably Italy and Spain.

Euro-Franc 5-minute Chart: July 22, 2011

Euro_Falls_After_Greece_Bailout_Loonie_Under_Pressure_After_CPI_body_Picture_4.png, Euro Falls After Greece Bailout; Loonie Under Pressure After CPI

Charts created using Strategy Trader– Prepared by Christopher Vecchio

In news ahead of the North American trade, Canadian data gave a mixed outlook on the state of the economy, sending the Loonie sharply lower across the major currencies. First, at 11:00 GMT, the consumer price index was released, showing a 3.1 percent increase, a slower pace than expected. According to a Bloomberg News survey, inflation was expected at a 3.6 percent clip in June, down from 3.7 percent in May. The data comes after Bank of Canada Governor Mark Carney noted earlier this week that inflation would exceed 3 percent in the “short term,” as the central bank held rates a 1.00 percent. The Loonie did not take kindly to this news, falling approximately 50-pips against the U.S. Dollar in the minutes after.

Dollar-Loonie 1-minute Chart: July 22, 2011

Euro_Falls_After_Greece_Bailout_Loonie_Under_Pressure_After_CPI_body_Picture_10.png, Euro Falls After Greece Bailout; Loonie Under Pressure After CPI

Charts created using Strategy Trader– Prepared by Christopher Vecchio

In regards to other economic data released by Statistics Canada today, retail sales jumped, unexpectedly, on the highest gasoline receipts in three years and home improvement supplies. Sales expanded by 0.1 percent, beating the 0.3 forecast contraction, according to a Bloomberg News survey. The data briefly allayed concerns for the Loonie, which saw a brief 20-pip rally against the U.S. Dollar; however, considering inflation data is more important than the retail sales figures, the trend remained broadly to the downside for the Canadian Dollar.

Canada Retail Sales Less Autos: July 2008 to Present

Euro_Falls_After_Greece_Bailout_Loonie_Under_Pressure_After_CPI_body_Picture_13.png, Euro Falls After Greece Bailout; Loonie Under Pressure After CPI

Courtesy: Bloomberg

On the day thus far, the Dow Jones FXCM Dollar Index has retraced some of its losses over the past few days, gaining to a session high of 9473.88, after trading at a session low of 9439.45 at approximately 10:20 GMT. As the markets have shifted towards risk-aversion at the start of the North American session, the index has found additional support, as the Greenback and the other safe havens, the Japanese Yen and the Swiss Franc, have found support.

Euro_Falls_After_Greece_Bailout_Loonie_Under_Pressure_After_CPI_body_Picture_6.png, Euro Falls After Greece Bailout; Loonie Under Pressure After CPIEuro_Falls_After_Greece_Bailout_Loonie_Under_Pressure_After_CPI_body_Picture_7.png, Euro Falls After Greece Bailout; Loonie Under Pressure After CPI

Euro_Falls_After_Greece_Bailout_Loonie_Under_Pressure_After_CPI_body_Picture_8.png, Euro Falls After Greece Bailout; Loonie Under Pressure After CPI

Fundamental Headlines

Democrats Balk at Potential U.S. Debt-Limit Deal – Bloomberg

Europe’s Biggest Banks Face $30B Greek Writedown – Bloomberg

U.S. Stock Futures Erase Gains on Caterpillar – Bloomberg

Fitch to Declare Interim Greek Default – CNBC

Greek Package Boosts Risk Appetite – Financial Times

USDCAD: The USD/CAD pair, finding support just off of its all-time lowest exchange rate, jumped significantly on Friday, taking back the past two day’s losses, and cut in half Tuesday’s losses, as the disappointing CPI data reduced expectations of a rate hike in the future. Indeed, 60.0-basis points are still priced into the Loonie for the next 12-months, and there is a 20.0 percent chance of a 25.0-basis point rate hike at the next meeting.

Taking a look at price action, broke through its pivot today, at 0.9455, and was trading at 0.9512 at the time this report was written. Accordingly, the pair appears to have bottomed, with three key technical indicators pointing towards further USD/CAD pair strength over the coming days. The daily RSI is rising now, at 42, while the Slow Stochastic oscillator has issued a buy signal, with the %K greater than the %D, at 11 and 9, respectively. The MACD Histogram, while entrenched in a bearish divergence, is tapering out, with the differential at -15. There will need to be meaningful follow through over the next few days to confirm such a move, and if the U.S. Congress is able to resolve the debt ceiling debacle, this could very well be the fundamental trigger necessary to perpetuate further Greenback strength.

Written by Christopher Vecchio, Currency Analyst

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