A Greek deal is almost here again, maybe tomorrow or Friday or next week! ItÃ¢â‚¬â„¢s like dealing with an adolescent teen and their irreverent actions. Accountability and big picture politics do not seem to be included in the Greek decision process, otherwise there would be a greater sense of urgency and unity rather than domestic discord and non decisions. Despite all this, the hint, the potential, the wanting has the EUR bid over the past two sessions, allowing it to print a two-month high. The market reaction is letting the SNB and BoJ breath, not any easier, but breath.
Greece’s principal political parties are supposedly meeting with Prime Minister Papademos this morning to discuss austerity measures negotiated with the EU/IMF Troika. In political reality they are expected to be endorsed, if not, the EUR has a long way to fall. PSI discussions continue in tandem and are the other element necessary before the next installment of bailout funds can be advanced. Everyday the Greek default date next month gets closer and it will not be come down to who Ã¢â‚¬ËœflinchesÃ¢â‚¬â„¢ first. A section of the market already believes a PSI deal has been agreed, uncertainties will remain over the actual level of bondholder participation and it will be this that will create further market stress over the coming weeks.
ItÃ¢â‚¬â„¢s probably not a stretch to believe that the EUR will consolidate in this range 1.3230-1.3320 ahead of the ECB meeting tomorrow. It seems that the market believes that dips provide a good buying opportunity. All week, the hopes for Greek closure, not foreclosure, has had leveraged players, speculative bids and reserve managers jump on the EUR happy train. It is this that has helped the currency pair to run stops above some significant resistance levels. Now, its wait and see time again. What will Draghi say?
As for the BoE, sterling is naturally expected to underperform or lag its Commonwealth currencies (AUD, CAD, NZD etc) despite printing a three-month high, as investors position themselves ahead of tomorrows BoE meeting. Concerns about the possibility of extending the central banks asset-purchase program is likely to mute some of Cables gains in this Ã¢â‚¬Ëœrisk-onÃ¢â‚¬â„¢ environment. Be careful, the possibility of more aggressive easing by King and company could add to the upside risk of the EUR on the cross.
EZ debt crisis infographic