EUR USD (1.3125) With early (at the time, unconfirmed) reports that Greek policymakers had been able to plug a €325 million budget hole, and that the ECB intended to swap its ‘old’ Greek bonds for new PSIexempt paper, the stage was set yesterday for a bailout deal on Monday and for a swift completion of the PSI negotiations. As traders had hammered the single-currency lower during the whole of the European session, against a backdrop of heated political exchanges and missed deadlines, one could easily imagine that the news would afford the euro some respite. The problem with this view is that the popular opinions about the outlook for Greece have barely changed – the history of the crisis, sceptics remind us, is one of steady erosion punctuated by occasional reprieves. In reality, the euro started rising once the US data was released. Jobless claims, the lowest since March 2008, were particularly encouraging. Indeed, the employment trend over the past few months has been increasingly upbeat; there is even anecdotal evidence of US manufacturers re-localising from China to benefit from the narrowing production cost gap. So there are genuine signs of ‘green shoots’, but commentators are reluctant to use the hackneyed expression, because it doesn’t fit with the prevailing scepticism.
The euro would regain its bullish dynamism above 1.3195 and subsequently move to 1.3395. In the meantime, though, it remains in correction mode, albeit with better support now at 1.3020.
Click here to read the full report: Daily forex 02.17.12
Deutsche Bank