EUR/USD Feb.21 – Limited Rally After Greek Deal Announced

Euro dollar  is close to the resistance level seen yesterday and unable to break higher for now. The pair fell as negotiations in Brussels were dragging late into the night, and it leaped back up when a deal was announced. Greece will get a second bailout program worth 130 billion euros and is expected to follow the plan successfully. Celebrated EU summits haven’t been followed through with successful implementation so far. Private investors were squeezed a bit more in order to reach a better debt ratio: 120.5% in 2020. The troika report came out into the open and threatened to bring negotiations down. The IMF contribution is still to be decided upon. US traders are returning from a holiday. Will they boost the euro? Or will optimism fade away?

Here’s an update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: The euro slid at first down under 1.32 before the deal was announced late in the European night.
• Current range:  1.3212 to 1.3280.

• Further levels in both directions: Below:   1.3212, 1.3145, 1.3060, 1.3060, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2620.
• Above:   1.3280, 1.3333, 1.3450, 1.3550 and 1.3650.
•  1.3333 is the line capping the year’s highs. A break above would be a bullish sign.
• 1.3212 is weaker support now. 1.3145 strengthens.

Euro/Dollar on Greek decision day  – click on the graph to enlarge.

EUR/USD Fundamentals

• 15:00 Euro-zone Consumer Confidence. Exp.-20 points.

For more events later in the week, see the  Euro to dollar forecast

EUR/USD Sentiment – Details of hurdles

• Greek Second Bailout Deal Done: After 13 hours of negotiations, the European finance ministers finally reached a deal on a 130 billion euros package.  The  “secret troika report”   was the sticking point, as it showed a debt to GDP ratio of 129% under the optimistic “baseline scenario”. The less optimistic scenario showed a ratio around today’s 160%, and a bailout size of more than 200 billion euros. Due to the  insistence  of the IMF, the private sector haircut was raised to a nominal value of 53.5%, voluntarily of course. This means around 73% in real terms. National central banks will also contribute around 1.8% of Greek GDP via the profits realized by the ECB, as Draghi hinted.
• IMF Contribution Only in Second Week of March: The International Monetary Fund, which is massive funding from the US, is expected to provide a much smaller contribution to the second bailout. This means that EU countries will have to contribute more. The decision will take place only in the second week of March.
• Plan B still possible: Despite the deal, things, such as the IMF contribution or more Greek misses, could still go wrong. There are reports about plans made in Germany and the US for a  Greek bankruptcy on March 23rd, when Athens will raise a white flag and a bank holiday will be announced. Here are  5 more ominous signs that Greece is pushed to the corner.
• Portugal awaits Greece: Portuguese yields remain on high ground. The path chosen for Greece will likely be followed by the small Iberian country in the infamous “contagion” effect that is feared.
• More Positive US figures:  Yet again, US  jobless claims dropped to lower pre-crisis levels. The housing sector is more sensitive. Also the forward looking Philly index exceeded expectations, although its employment component was weaker than last month. The general picture of gradual improvement continue. This week doesn’t feature too many US figures.