Euro dollar is on high ground on this highly important day on a special date. The second LTRO of the ECB is in the limelight: European banks will get more cash, and there’s a lot of uncertainty about the size and market reaction. “Selling the fact” seems the best option. Will Greece be let go after banks are better equipped? Later, revised US GDP and more importantly, a testimony by Ben Bernanke will shake the markets.
Here’s an update on technicals, fundamentals and what’s going on in the markets.
- Asian session: Quiet session sees another touch of 1.3486, which becomes stronger resistance.
- Current range: 1.3430 to 1.3486.
- Further levels in both directions: Below: 1.3430, 1.3333, 1.3280, 1.3212, 1.3145, 1.3060, 1.3060, 1.2945, 1.2873 and 1.2760.
- Above: 1.3486, 1.3550, 1.3615, 1.37, 1.38 and 1.3950.
- 1.3486 could be breached after the LTRO, with 1.3550 limiting rallies.
- 1.3333 now switched into support, after the convincing break.
- 1.3430 is a minor pivotal line
Euro/Dollar stable on high ground – click on the graph to enlarge.
- 7:00 German Import Prices. Exp. +0.5%. Actual 1.3%.
- 7:45 French Consumer Spending. Exp. +0.3%. Actual -0.4%.
- 8:55 German Unemployment Change. Exp. -5K. Actual 0K.
- 10:00 Euro-zone CPI. Exp. 2.7%. Core CPI exp. 1.8%.
- 10:15 LTRO results expected. Will EUR/USD sell the fact?
- 13:30 US GDP, second edition. Exp. 2.8%.
- 14:45 US Chicago PMI. Exp. 61.6 points.
- 15:00 US Federal Reserve Chairman Ben Bernanke talks. Dovish tone expected.
- 15:30 US Crude Oil Inventories. Exp. +1.4 million.
- 7:00 US Beige Book.
For more events later in the week, see the Euro to dollar forecast
EUR/USD Sentiment – Details of hurdles
- ECB LTRO II: The first unlimited 3 year loans managed to stabilize the banking system and to create an incentive for banks to buy Italian and Spanish bonds. The second LTRO is highly anticipated by the markets. Given past experience, the euro might rise immediately after the results are published, whatever they are, and sell afterwards. This is a classic “buy the rumor, sell the fact scenario”. The success of this operation can make European leaders feel safe and let go of Greece.
- Ben Bernanke can talk dollar down: After the dust from the LTRO settles, Ben Bernanke’s testimony can weaken the dollar. He did it last time. Bernanke refuses to acknowledge the improvement in jobs and says it “understates” the real situation. The weak durable goods orders support a soft tone. He could provide hints towards a possible QE3 in March, although the chances remain low.
- German ministers wants Greece to go: In a passive aggressive move, German finance minister Wolfgang Schäuble said that he will respect countries who want to leave. Greece doesn’t want to leave, but there’s a growing notion that it is pushed to declare bankruptcy. This joins the words of Hans-Peter Friedrich that said he would advise Greece to leave the euro-zone and said that Greece should be “made an offer it can’t refuse” to leave.
- Bond Swap Clock Ticking: Greece approved and officially launched an offer for a bond swap. The big haircut casts doubt that it will find enough volunteers. A big majority is needed, for the non-volunteers to be swapped as well via the Collective Action Clauses. Note that some hedge funds have an interest to trigger the Credit Default Swaps, as they will more money on a default. A special report about Greece is ready for you to download. Just join the newsletter and get the report.
- S&P Declares Selective Default: While it was widely expected, this is still an important event. The credit rating agency hinted that if the bond swap doesn’t pass, it will be an outright default. The European Central Bank already swapped its Greek bonds to ones that would be immune of the aforementioned CACs. This means that they have priority.
- 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.
- German court hurdle: A German court might delay the euro-zone aid package by forcing a different procedure in parliament. Given past experience, this hurdle will likely be overcome.
- Germany improving: Despite the contraction in Q4, Germany will likely escape recession. The recent IFO and ZEW figures were better than expected. With an unemployment rate of 5.5%, Germany is attracting immigrants and envy.
- 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.
- US Housing still sensitive: The sensitive housing sector has shown minor improvement via the existing home sales figure . Single family houses are still struggling, as well as foreclosures. The trend of falling jobless claims, at least in the 4 week moving average continued. The Case Schiller index becomes more important due to this sensitivity.