Dollar Mostly Softer as Greek Deal Inches Closer

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (BBH FX Strategy) -- The dollar is extending its recent losses on hopes that Greece is inching closer to a deal that would ensure the next bailout payment, though the major currencies remain in relatively tight ranges. The S&P 500 closed at its best level since July 7 of last year and the EuroStoxx 600 hit a fresh six-month high, with European banks up 1.5%.

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The euro is flat, trading around the North American close of 1.326, after unsuccessful attempts of breaking 1.330. Given market positioning and the potential for more shorts to get squeezed out of the market, we suspect the euro may have more room to run, with the 1.340 the next target.

Sterling continues to meet resistance ahead of the 200 day moving average (1.594) and Thursday's Bank of England meeting. The dollar is advancing against the yen for the second day in a row, with the dollar-yen trading near 77.00 following weak December current account data. The dollar bloc currencies are advancing. The Australian dollar moved to six-month highs toward 1.085.

Greek PSI

Sentiment regarding Greece continues to improve, with talk yet again that a PSI deal has been reached. In addition, media is reporting that the European Central Bank has agreed to transfer its Greek bonds purchased under its securities market program to the European Financial Stability Facility at cost, which amounts to an estimated 11 billion euro savings for Greece. This is a compromise, as some have reportedly been pushing the ECB to take a haircut along with the private sector.