EUR USD (1.3265) Although the eurozone ministers rejected the tortuously negotiated Greek deal as insufficient to disburse the next tranche of the bailout package, the euro hardly mirrored any volatility, an indication that investors have become weary about the whole Greek issue. We reckon that half a year earlier the reaction in the euro would have been more pronounced. Investors, it seems, believe that the politicians will somehow clinch an eleventh-hour deal for the March 20 deadline, the larger issue of sustainability of Greek debt is anyway buried deep under the clamour of repeated negotiations. ECB President Draghi delivered the expected on the interest rate front. In the context of LTRO2 due end February, Draghi approved proposals from 7 national banks to lower the collateral barrier. Earlier he was criticised for augmenting the ECB’s balance sheet with too many distressed assets. For those worried about the stored inflation risks, Draghi downplayed the estimated take-up amount that LTRO2 might attract. Since expectations have reached to a high mark of €1 trillion, this was clearly an attempt on his part to anchor market expectations at a much lower level. On the role that ECB’s Greek bond holdings will play in trimming the country’s debt, Draghi categorically rejected taking losses but did not rule out foregoing profits on the bonds it acquired for around €40 billion.
Our bullish strategy remains intact with 1.3395 as price target and a higher risk-limit at 1.3130.
Click here to read the full report: Daily forex 02.10.12
Deutsche Bank