Irish IMF/EU Agreement Reached – Euro to Have a Good

An 85 billion euro aid package deal has been reached between the EU / IMF delegation and the Irish government. All the Euro-zone’s finance ministers are now in Brussels, waiting to see the terms and to approve them, especially the interest rate at which Ireland will borrow. This should give a temporary boost to EUR/USD.

European officials are in a race to announce the deal before the markets open on Monday. Yesterday, a big protest in Dublin called the government to abandon the severe budget cuts and let the banks fail alone, without the Irish people having to pay the price.

The Irish Times  reports:

“EU finance ministers are now ready to sign off on it, but I think they will also want to discuss some of the finer details and add some political impetus to what has been agreed in Ireland,” he said.

It will be interesting to see if holders of bank bonds will get a “haircut”.

There’s no certainty  that the Irish government will manage to pass the budget on December 7th as planned – the coalition’s majority is narrower now, as they lost one supporting member in a  by election. And there are also “rebels” within PM Cowen’s ruling party as well.

We’ll get to feel the see the market reaction to the deal through EUR/USD – it’s likely to rise on the good news, but as Gerry Davies writes, this was quite expected.

EUR/USD closed the previous week on its knees after losing around 450 pips. For technical analysis and an outlook of events, see the Euro Dollar forecast.

Update 16:00 GMT: A fresh EUR/USD Elliot Wave analysis sees deep low targets for the pair.

Last week, the announcement of an Irish aid request got the Euro a good start of the week, but the cracks in  the  Irish government and the fear of contagion led to a collapse of the Euro  throughout  most of the week.

A good gauge of contagion fear can be found in the Spanish 10 year bond yields, that reached record highs.

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