EUR/USD Marching South on Growing Worries About Greek PSI

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Euro/dollar fell below support and continues going down as worries intensified about the participation rate in the “voluntary” bond swap. 

It began with a call for participation which showed doubts, and now there are more worrying reports.

No Volunteers

The Private Sector Involvement (PSI) scheme cuts around 74% of the value of Greek bonds. This is a critical part of the second Greek bailout. The current deadline for answers is Thursday, March 8th. Rumors about a delay floated and were denied.

The IIF called for participation in the bond swap and Greek officials were confident about the participation level. Some hedge funds prefer to see the deal fail, as it will then trigger Credit Default Swaps, which they own.

The voices became louder: reports came from the ECB about a low participation rate, and the head of the Eurogroup Jean-Claude Juncker talked about a Plan B.

Now things look worse

Many banks said they intend to participate, but there are reports that only a 20% participation has been achieved so far.

The Greek finance ministry warned about the consequences of a failure. They seem scared. Also Merkel noted new problems if the debt swap doesn’t go through.

Forex

EUR/USD is hanging on to 1.31, after breaking the 1.3150 line earlier. The pair managed to bounce off this level earlier in the week, but a second attempt passed.

The next support line is 1.3050, which is much stronger. It’s followed by the round yet minor line of 1.30, and then by 1.2945, which is already stronger. See more levels in the euro to dollar forecast.

EUR/USD Falling March 6 2012

Main scenario: Greek bankruptcy

It’s hard to know whether Greece will not get volunteers, will get between 75% to 90% meaning using triggering CACs (and then CDS) or if 100% will be achieved. The hedge funds are too quiet, and for a good reason.

It’s important to remember that the EU hasn’t approved Greece’s “prior actions” yet.

So, even if Greece gets 100% volunteers, the EU may still not release the funds.

Greece could still announce bankruptcy on March 23rd. For a detailed report about the Greek situation, download the report by joining the newsletter below.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.