EUR/USD Nov 27 – Lower Despite Agreement Over Greece

At the Eurogroup meeting in Brussels on Monday, the Euro-zone and IMF finally reached an agreement over Greek’s long-term debt. The deal gives reduces the Greece’s debt load, and should pave the way for the next installment of bailout funds next month. Despite the positive news, pressure on the euro continues. In economic news, US markets return to action after the Thanksgiving Holiday. There are two key releases today, Core Durable Goods Orders and CB Consumer Confidence.

EUR/USD Technical

• Asian session: Euro/dollar inched upwards, trading around 1.2990. The pair is lower in the European session.
• Current range: 1.2880 to 1.2960.

Further levels in both directions:      

• Below: 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.2960, 1.30, 1.3030, 1.3080, 1.3140, 1.3170, 1.3290 and 1.34.
• 1.2880 is a strong  support line.
• 1.2960 is providing weak resistance as the pair moves lower. 1.30 is the next line on the upside.

Euro/dollar lower despite Greek deal- click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 German Import Prices. Exp.  -0.5%. Actual -0.6%.
• 11:30 US FOMC Member  Dennis Lockhart Speaks.
• 13:30 US Core Durable Goods Orders. Exp. -0.6%.
• 13:30 Durable Goods Orders. Exp. -0.6%.
• 13:30 US Fed Chairman Bernard Bernanke  Speaks.
• 14:00 S&P/CS Composite-20 HPI. Exp. +2.9%.
• US CB Consumer Confidence. Exp. 73.1 points.
• 15:00 US HPI. Exp. +0.4%.
• 15:00 Richmond Manufacturing Index. Exp. -2 points.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Agreement  reached  over Greek debt: Following another round of arduous negotiations, Euro-zone finance ministers and the IMF hammered out a deal over Greek’s long-term debt. Under the agreement, the troika has agreed to reduce Greece’s debt by 40 billion euros, lowering it to 124 per cent of Greek GDP by 2020. To reduce the debt, the Eurogroup agreed to lower interest rates on loans to Greece, and give Greece 11 billion euros from profits of the ECB purchases of Greek government bonds. As well, the zone finance ministers agreed to  help Greece purchase  such bonds from private investors. The agreement  is certainly a  milestone, and should clear the way for Greece to receive additional bailout funds next month. However, the question  remains whether  zone member states will eventually have to write off some of  their Greek loans. Germany and other members are staunchly opposed to any  such move, and time will tell if Greece can successfully  find its financial footing.  
• Greece expecting more bailout aid:  News of an agreement  over Greece’s debt out of  Brussels was cheered by the beleaguered Greek  government.  Prime Minister Antonis Samaras appeared on national television late Monday night  to celebrate a “new day” for the struggling country. Samaras will surely be counting down the days to December 13, the scheduled date of the next installment of bailout funds.  Greece has enacted painful cuts and reforms as part of the troika’s demands, and is impatiently waiting for more bailout aid. However, the government knows it will have to make good  on its commitments in order to receive each payout, and  if the past is any indication, Greece’s road to recovery is likely to be a bumpy one.
• Euro down despite Greece breakthrough: EUR/USD responded positively following the news that a deal had been reached over Greece’s debt, and briefly broke  the 1.30 line.  However, the euro has since  lost ground.  Will this drop turn out to be  temporary blip?  The  continental currency  has flexed some muscle in the past two weeks, gaining over  two cents against the  greenback. The main catalyst for this rally has been positive Euro-zone data, including respectable PMIs and unexpectedly strong German business climate data. However, the euro continues to remain vulnerable, as underscored by today’s negative movement.  
• Separatists  suffers setback in Catalonia: Separatists in the Spanish region of Catalonia won regional elections on Sunday, but the ruling party, the CiU, lost 12 seats, complicating plans for a referendum on independence. The results are a victory for the central government in Madrid, which is struggling with an economy in recession and can ill afford further political turmoil. However, the separatists now control two thirds of the local parliament, and Prime Minister Mariano Rajoy’s political headaches are far from over.
• EU Summit Fails to Adopt Budget: European leaders failed to reach any agreement over the EU budget for 2014-2020. The bloc’s wealthier countries, led by the UK wanted to reduce their contributions due to the tough economic climate. Unsurprisingly, struggling members such as Greece, Portugal and Spain opposed any cuts. In the end, the gap between the two sides were too wide to bridge. European Council President Herman Van Rompuy, who presided over the summit, tried to put a brave face on the impasse, saying that he was hopeful that the “constructive discussions” at the summit could result in an agreement in early 2013.
• Fed monitoring fiscal cliff crisis: It is not just politicians and the markets that are closely following the fiscal cliff crisis, which  threatens to  undermine the fragile US economic recovery. For its part, the Federal Reserve  has taken the fiscal cliff into account by purchasing  $40 billion in  mortgage-backed securities  each month. With this program (Operation Twist), slated to  terminate at the end of the year, the Fed will have to decide at its next meeting whether to  extend this program into 2013. Any decision with regard to QE could have serious repercussions on the currency markets, which gives added significance to the next Fed policy meeting.