EUR/USD Mar. 8 – Moving Higher on High PSI Participation

Euro dollar  is ticking up to higher ground before the Greek offer on the bond swap officially closes late in the day. Fresh reports talk about a high participation rate, which will allow the deal to go through, but probably not as high as 90% required to avoid the dreaded Collective Action Clauses. The ECB’s rate decision and last US figures before the NFP will play second fiddle in this busy day.

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

EUR/USD Technicals

• Asian session: A relaxed session sees the pair rise up above 1.3150.
• Current range:  1.3150 to 1.3212

• Further levels in both directions: Below:   1.3150, 1.3050, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2620.
• Above:   1.3212, 1.3280, 1.333, 1.3430, 1.3486, 1.3550 and 1.3615.
• 1.3212 is stronger resistance above.
• 1.3150 is a weak pivotal line. 1.3050 is stronger.

Euro/Dollar in lower ground  – click on the graph to enlarge.

EUR/USD Fundamentals

• 11:00  German Industrial Production. Exp. +1.1%.
• 12:30 US  Challenger Job Cuts.
• 12:45 Euro-zone rate decision. Exp. No change at 1%.
• 13:30 ECB president Mario Draghi talks in press conference. See ECB preview.
• 13:30 US Jobless Claims. Exp. 352K. Last hint before Non-Farm Payrolls.
• 20:00 Deadline for Greek PSI offer.  

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

EUR/USD Sentiment – Details of hurdles

• High hopes for Greek PSI: The  bond swap, in which private bondholders “volunteer” to lose around 74% of the bond value promised by Greece, ends today if no delays are announced.. A participation rate of under 75% will be extremely problematic, as the deal would be called off. 75%-90% means that Collective Action Clauses would be triggered and this means a credit event. Above 90% is perfect. Reports now talk about 58% already approved and the estimation is that the result will be between 75% to 85%. Despite some public support, hedge funds remain quiet.  The doubts certainly hurt the euro.
• Draghi to play second fiddle: The ECB is not expected to cut the interest rate or announce any policy changes. Draghi will likely cheer the first and second LTRO, will discuss the “mild recession” but not comment on Greece, despite wishes from the press. See more in the ECB preview.
• Don’t forget the prior actions: Hopefully assuming that the bond swap will go through, the final approval for the release of EU funds is planned for March 9th or 12th. Euro-zone finance ministers noted that Greece made a lot of progress. Nevertheless, they are waiting for the bond swap to finish and for a “final assessment”. ThThe March 20th deadline is getting too close. Here are  5 hurdles that could further delay or cancel the bailout.
• Portugal will need another bailout: The details of the Greek deal, whether implemented or not, will  likely weigh on Portugal, together with the recession. Once Greece is out of the limelight, Portugal will enter.
• ISDA Doesn’t Call Default: The international body responsible for deciding if there was a default or not decided not to declare a credit event for now. They  left the door open  to more questions and a different decision, and noted the “evolving situation” in Greece.
• 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.
• 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.
• OK Employment Report expected: Friday’s Non-Farm Payrolls could be decisive for QE3. Various important indicators lead up to the NFP. In Bernanke’s latest testimony, he  said that the improvement in employment surprised him. This was enough to boost the dollar, big time. The important  services sector PMI exceeded expectations  but the employment component showed slower growth. The ADP report was positive and elevated hopes. Today’s jobless claims will provide a small hint about the unemployment rate.