EUR/USD Nov 28 – Under Pressure Over Greece, Fiscal

EUR/USD remains under pressure, despite the initial  market enthusiasm  which followed the agreement between the Eurogroup and IMF finally reached over Greece’s long-term debt. The deal reduces the Greece’s debt load, and should pave the way for the next installment of bailout funds in December. However, the markets are concerned that Greece may not be able to implement the fiscal reforms required by the agreement. Market sentiment was also hurt following remarks by US Senate Majority Leader Harry Reid  that he was  unhappy with the lack of progress  in talks to resolve the fiscal  cliff crisis.  In economic news, US Core Durable Goods Orders came in well above the market forecast. Euro-zone M3 Money Supply looked sharp, posting its highest gain in over three years. The markets will be hoping for more good news from the German Preliminary CPI. In the US, today’s highlight is New Home Sales.

EUR/USD Technical

• Asian session: Euro/dollar was steady, trading around 1.2930. The pair  has edged  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 resistance. 1.30 is the next line on the upside.

Euro/dollar under pressure as concerns mount over Greece, fiscal cliff- click on the graph to enlarge.

EUR/USD Fundamentals

• All Day: German Preliminary CPI. Exp. -0.1%.
• 9:00 Euro-zone M3 Money Supply. Exp. 2.8%. Actual 3.9%.
• 9:00 Euro-zone Private Loans. Exp. -0.8%. Actual -0.7%.
• 15:00 US New Home Sales. Exp. 387K.
• 15:30 US Crude Oil Inventories. Exp. 0.5M.
• 17:15 US FOMC Member Daniel Tarullo Speaks.
• 19:00 US Beige Book.

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

EUR/USD Sentiment

• Market concern continues despite  Greek deal: Despite the much-heralded agreement between the Eurogroup and the IMF over Greece’s debt, the euro has failed to gain ground. After the initial euphoria, the markets seems  to have lost some enthusiasm. The latest concern reflects the lack of detail in the agreement as to how  Greece will implement the reforms needed to meet its new fiscal targets.  The  first installment  of aid  scheduled for delivery in December appears to  be linked to the success of the buy-back scheme stipulated in the agreement. As well, further bailout installments, which are to be delivered in early 2013,  are  conditional upon  Greece’s ability to meet key  fiscal targets. Clearly, despite the self-congratulating in Brussels this  week, this lingering saga is far from over.
• Eurogroup, IMF sign deal on Greek debt: After arduous and sometimes acrimonious negotiations, Euro-zone finance ministers and the IMF hammered out a deal over Greek’s long-term debt earlier this week.  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 euro-zone finance ministers agreed to help Greece purchase such bonds from private investors. The agreement should clear the way for Greece to receive additional bailout funds, starting  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, even with the much-needed rescue funds.
• Fiscal cliff impasse continues: Despite some smiles and encouraging words from both Republicans and Demcrats last week, the fiscal cliff impasse is continuing, if not  getting worse. If no  compromise is reached,  the US will be faced with some $600 billion in automatic tax hikes and spending cuts on January 1.  Yet the partisan bickering continues, as  Senate Majority Leader Harry Reid, a Democrat,  voiced his  frustratation  over the lack of progress in talks with the Republicans. For their part, the Republicans have called on President Obama to detail long-term spending cuts, and have vowed to fight tax hikes.
• 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.
• 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.