Relief gains for the euro after Greece's overnight rescue deal proved short-lived today, with investors looking to sell into any bounce on doubts that Athens' debt burden is any more manageable.
With most of the good news priced in for the moment, traders said chances that the euro will rise above a key resistance level of around $1.3307 were small. Still, with many speculators already running bearish positions a sharp drop was unlikely.
The euro was 0.1 per cent lower at $1.3225, coming under pressure early in the European session on selling by Middle-Eastern investors and pulling back from a session high of $1.3293 reached after the success of the talks overnight.
A bunch of automatic buy orders to limit losses above $1.3300 were intact, with near-term resistance at its 100-day moving average of $1.3307. On the downside, bids were cited at $1.3220 and around $1.3200, with stops below the session low at $1.3185.
"It has been a relief rally for the euro, but there are so many caveats, so many risks to implementation," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
"One hurdle has been cleared, but many more left to be cleared and for now it looks like the euro will trade below that 100-day moving average."
After a marathon session of talks, euro zone finance ministers sealed a €130 billion deal and finalised measures to cut Greece's debt to 120.5 per cent of gross domestic product by 2020. But the measures are unpopular among the Greeks and may create social unrest in a country that is due to hold an election in April.
Also, every government in the currency union will also have to approve the package. Given Greece is in a deep recession, the tough measures also only compound its broader economic woes and the country could still need more funds to cut its debt.
Overall, analysts were worried that Europe still faces an uphill battle to deal with economic problems which are expected to drive the euro zone into recession early this year. That stands in contrast to the US economy, which has regained some strength in recent months.
Strategists at Morgan Stanley said further upside in the euro was limited and a rebound would be an opportunity to investors to re-establish short euro positions.Their FX positioning tracker suggested short euro positions had been significantly reduced in the past few weeks, leaving scope for fresh bearish strategies to be put in place.
Reuters