EUR-USD (1.4390) The euro surged higher yesterday on the news that a new bailout deal will allow Greece, Ireland, and Portugal to borrow at rates between 3.5 and 4 percent and to extend their loan payments out to 30 years. Moreover, the EFSF will now be allowed to assist countries that are not already in a bailout, apparently bringing the EU ahead of the credit-crisis curve. European officials were able to select a bit from a smorgasbord several aid remedies, including private sector involvement, to finally solve the funding crisis – at least for Greece. The ECB, in contrast to its earlier opinion, accepts the likelihood of a selective default. It insists that the outcome is not a credit event, while making it clear that any bondholder programme for the private sector applies only to Greece. The EUR/USD one-month implied volatility shrank significantly on the back of the announcement, reflecting a calm that spread across the market even as the euro cruised higher. Now the question dogging market participants is how long this sense of well-being will prevail. Is it only a matter of time before another country is pulled into the sovereign debt vortex?
The euro skated higher on every publicised detail of deal to our eurobullish target. Nevertheless, many traders doubt the euro’s prospects, especially if US lawmakers manage to solve the budget crisis. But we see the single-currency as well supported at 1.4315 and at 1.4260, and believe it could reach 1.4580.
Market Bias Index
The US dollar is now likely perceived as the most undervalued currency. In contrast, the euro shed has shed all of its undervaluation bias, and is broadly perceived as ‘fairly-valued’.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/07/GDPBD00000188387.pdf
Deutsche Bank
Fixed Income Research – Global