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.
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.
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.
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.Get the 5 most predictable currency pairs