Euro Gains on EU Aid to Greece
The euro made inroads against most major currencies after European finance ministers worked out a Greek aid plan. Better than expected German investor confidence figures also sent the euro higher in global currency markets. The US dollar was little changed in advance of a Federal Reserve meeting on Wednesday. Most experts expect the Fed to keep rates at historic lows. Camilla Sutton of Bank of Nova Scotia stated, “The dynamics are supportive of the euro. The data was supportive and there’s progress on the European Union front. Everything is coming together to support risk sentiment.” The greenback fell 0.5% vs. the euro trading at $1.3748. At a meeting Tuesday EU officials worked out emergency loan strategies designed to prevent a Greek default.
EU Nations to Pool Funds for Greek Loans
Despite the rescue mechanism devised by EU officials the euro remains under pressure. Standard and Poor’s gave Greece a BBB+ long term rating and an A-2 short term rating with a negative outlook. According to an unnamed EU official aid to Greece will likely come from EU nations pooling funds for direct loans to Greece. Details yet to be worked out include, loan sizes, how long the loans would last and which nations will participate in proposed loan programs. Greek Finance Minister George Papaconstantinou stated, “We are in a common currency area and it is clear that in a common currency area, persistent, huge divergences in terms of competitiveness between different member countries are not viable. Just as it is not viable for Greece to continue to lose competitiveness over the long run and running a persistently very high deficit. Similarly, it would be helpful if those countries that are running surpluses are the engine in a certain sense and help the entire euro zone get out of the difficult situation that it is (in).”
FOMC to Keep Rates Low
The Federal Open Market Committee meets today and most experts expect the FOMC to leave the target rate at 0.25%. While the Fed is expected to acknowledge that the US economy is recovering, high unemployment and the withdrawal of stimulus measures will prompt the Fed to keep rates at historic lows until recovery is certain. The Canadian dollar is on track for parity with the US dollar and hit a 25 year high vs. the British pound. The Canadian dollar has gained 3.7% this year against the greenback thanks to rising commodity prices and strong signs of Canadian recovery. On Tuesday March 16th the Canadian dollar gained 0.5% to C$1.0147.
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