EUR USD (1.4270) Commentators are abuzz over a Financial Times report this morning which says that European leaders are negotiating severe bailout terms for Greece, including international intervention in tax collection and the relinquishment of state assets in exchange for more relief money. The ECB’s Lorenzo Bini Smaghi believes Greece will be able to emerge from its debt burden without reneging on payments, and he dismisses the thought of ‘reprofiling’ or ‘soft restructuring’ for the beleaguered eurozone peripherals. In an interview with the London broadsheet, he said that ‘orderly’ restructuring is ‘a fairytale’, and that any talk about restructuring suggests that investment in the eurozone is unsafe. Nevertheless the ongoing drama in Greece and Ireland, whose Transport Minister raised alarm this weekend by saying the Republic will have to tap the EU and the IMF for more funds next year, hasn’t affected the euro all too negatively. Indeed, the single-currency rallied on Friday afternoon (counter to recent tradition) and still continues to trade in stable territory this morning.
The euro is most likely supported by long-term capital inflows, but that’s only half of the story. In the other narrative the euro is rather perceived as in a race to the bottom, where the dollar-index is presently outstripping the euro-index. The single-currency has the potential to reach 1.4445 or even 1.4540 as long as the stability threshold at 1.4130 remains in place.
Market Bias Index
The Swiss franc leads the Market Bias Index as the most overvalued currency of the group. The EUR/USD bias has now completely vanished.
Deutsche Bank
Fixed Income Research – Global