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The top end of the EUR range seems to have been set

European finance ministers have finally reached an agreement on Greece’s fiscal consolidation and have agreed that the next tranche of bailout funds will be dispersed on December 13.

This news saw the EUR briefly break above the 1.3000 level moving to a high of 1.3008, but there wasn’t enough buying interest to hold the currency at that level and we have seen the EUR move lower to the middle 1.29’s. The agreement on Greece has also helped the Australian and Canadian Dollars firm overnight.

Here are a couple of highlights from the Greek agreement. The new agreement includes a plan for Greece to lower its debt to 124% of GDP by 2020 and to get that below 110% by 2022. The IMF you may remember had been requesting a debt to GDP ratio of 120% by 2020. The agreement also includes a reduction of interest rates of 100 basis points on Greek debt as well as an extension of the maturities on loans for 15 years from other countries and the Eurozone’s bailout fund, the EFSF, and a deferral of interest payments by Greece on EFSF loans by 10 years.

European finance ministers believe that after three years of failure, they have finally succeeded in finding a formula that will get Greece back on track. Now that the ministers have finally solved the Greek problem, they can turn their attention to problems in Cyprus as well as the potential for aid by Spain.

ECB President Draghi commented that the agreement will reduce uncertainty and strengthen confidence in Europe and Greece. Luxemburg’s Prime Minister Juncker said he believed in “Greece’s capacity to recover”. So all seems well now in Greece and we will see how the markets react to the agreement in the coming days. After three years of failed compromises trader will probably be initially skeptical regarding this latest agreement.

In other surprising currency news, it was announced that Bank of Canada governor Mark Carney will succeed Mervyn King as the head of the Bank of England. This was announced to UK parliament by the Chancellor of the Exchequer, George Osborne, yesterday. Carney will begin his 5 year term next July. It is the first time in Bank of England history that a foreigner has been named governor. Mr. Carney has a reputation of being a “hawkish” central banker, and the GBP has benefitted by the move. The move by the BOE, while surprising many is considered a positive one, as Mr. Carney has very good reputation as he has been able to lead Canada relatively unscathed through the global financial crisis.

Another developing story this morning has Dallas FED President commenting on US monetary policy. He stated that accommodative policies cannot be expected to be left in place forever and that limits should be set on US quantitative easing. These comments seemed to trump EUR demand from the Greece agreement. Traders now have to wonder whether or not the FED will extend QE3.

The top end of the EUR range seems to have been set this morning at 1.3010, right after the Greek announcement. At the present level we would probably need to see further news to get the currency back near those levels during Tuesday’s trading day. At the present, traders seem interested in probing overnight lows, and the support at 1.2950. A break there could see a test of 1.2925. The overall feel of the market seems that there are some “interday” long positions out there that could be sold off on a break of 1.2950.

Further reading:  EUR/USD Close to Long-Term Downtrend Resistance

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.