EUR/USD Dec 5 – Steady as Markets Hopeful over Greek

EUR/USD is steady, and the pair continues to test the 1.31 line. The euro has  put on  an impressive  rally, rising about 150 points against the dollar in the past week. Market sentiment remains cautiously positive over the Greek debt agreement.  Following approval from  the German parliament for  the Greece debt agreement, Greece has now  launched a buy-back scheme from private investors, as part of the deal. In  economic news,  Italian Services PMI fell below the estimate, but  Spanish Services  PMI rose.  There was more good news out of Spain, as Spanish 10-year bonds posted a slightly lower yield this month.  However, Euro-zone Retail Sales were a big disappointment, posting  its largest drop in 2.5 years. In the US, there are two key releases – ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI.

EUR/USD Technical

• Asian session: Euro/dollar was steady, as the pair consolidated at 1.3110. The pair has edged lower  in the European session, dropping below 1.31.
• Current range: 1.3080 to 1.3140.

Further levels in both directions:    

• Below: 1.3080, 1.3030, 1.30, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.3140, 1.3170, 1.3290 and 1.34.
• 1.3080 is  providing weak support. The pair is testing  1.31.
• 1.3140 is the next line of resistance.

Euro/dollar steady as markets hopeful over Greek debt agreement- click on the graph to enlarge.

EUR/USD Fundamentals

• 8:15 Spanish Services PMI. Actual 42.4 points.
• 8:45  Italian Services PMI. Exp. 46.0 points. Actual 44.6 points.
• 9:00  Euro-zone Final Services PMI. Exp. 45.7 points. Actual 46.7 points.
• 9:45  Spanish 10-year Bond Auction. Actual 5.29%.
• 10:00 Euro-zone Retail Sales. Exp. -0.1%. Actual -1.2%.
• 13:15 US ADP Non-Farm Employment Change. Exp. 129K.
• 13:30 US Revised Non-farm Productivity. Exp. +2.7%.
• 13:30 US Revised Unit Labor  Costs. Exp. -0.9%.
• 15:00 US ISM Non-Manufacturing PMI. Exp. 53.6 points. See how to trade this event with USD/JPY.
•  15:00 US Factory Orders. Exp. 0.0%.
• 15:30 US Crude Oil Inventories. Exp. -0.4M.

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

EUR/USD Sentiment

• Greece  launches buy-back program: Greece has offered to purchase 10 billion euros of its national debt, as part of the new bailout agreement aimed at resolving the country’s severe debt crisis. Market sentiment was positive after the Greek government offered a premium on markets prices for Greek bonds. The EUR 10 billion buy-back could allow Greece to retire up to EUR 30 billion worth of debt. Greece is expecting the next installment of aid on December 13, and the buy-back is scheduled to be completed by December 17. In a sign that public declarations are not engraved on stone, German Chancellor Angela Merkel hinted that Berlin could consider a write-off of its Greek loans. Germany has strenuously objected to such a haircut, but may have to show more flexibility if Greece is to stand on its financial feet.
• Spanish 10-year bond auction a success: The Spanish treasury raised 4.251 billion euros in  today’s bond auction. The average yield on 10-year bonds fell to 5.29%, down from 5.52% in November. With these positive numbers, the government may feel it can do without  an aid package. Just last week Spain tapped into a bailout for its banks, as it requested the ESM  to transfer about 40 billion euros  money to Spain’s banking authority FROB. These funds  will be add to Spain’s national debt. The country posted some positive economic data this week, including a strong drop in unemployment claims. However, Spain is grappling with an economic recession, and may have to resort to a rescue package sometime in 2013.
• German parliament gives nod to Greek deal: The agreement on Greece’s debt passed a major hurdle as German lawmakers overwhelmingly approved the deal, by a vote of 473-100. The agreement includes a debt buy-back scheme and an interest rate cut on loans to Greece. The approval by the German parliament clears the way for Athens to finally receive the 44 billion euro bailout package agreed to by the troika.
• Euro keeps rolling higher: Despite often sluggish economic data out   of the euro-zone, the euro has enjoyed recent success against the US dollar. EUR/USD has  jumped  around four  cents since mid-November, as the euro tests the 1.31 line. If the Greek debt agreement proceeds according to plan, look for the euro to benefit. As well, EUR/USD could make further inroads if the US fiscal crisis is averted, as the appetite for non-US assets would increase.
• Cyprus may request bailout: With the Greece debt deal moving along and Spain looking to tap into its rescue fund, the next candidate for a bailout could be Cyprus. Euro-zone finance ministers are considering a proposal whereby the island zone member would receive 10 billion euros in aid to refinance its banks, which have been badly hurt by the euro-zone debt crisis. No final agreement will be made prior to an audit of Cypriot banks,which should be completed in the next few weeks.
• Fiscal cliff battle continues: Republicans and Democrats continue to attack each other over the looming fiscal cliff crisis. The Democrats have demanded $1.6 trillion in additional taxes over the next 10 years, with higher taxes on those earning over $250,000. The Republicans have offered $800 billion in new tax revenue from spending cuts and overhauling the tax code. However, the Republicans are split on whether to agree to  higher income tax rates, and the Democrats, led by  President Obama,  could take advantage of the disarray in the Republican camp.   The markets are hoping that the politicians will find a compromise and avoid a crisis which could threaten the fragile US recovery. Both parties are likely to continue talking tough for a while yet, as the fiscal cliff clock ticks louder every day.