EUR USD (1.3010) Although it has been announced that the next Eurogroup meeting on Greece, scheduled for Monday, is likely to deliver a deal on the second bailout package, the markets are reluctant to believe that the crisis is heading for closure. The negotiations about closing a €325 million hole in the Greek austerity plans are since yesterday taking place against a more politically charged backdrop where leaders have exchanged provocative comments. Greek politicians claim that the PSI deal is ready to be signed off as soon as the deal on the bailout is ratified. There are also reports that a bridge loan is being considered to finance the March 20th bond repayments and that the whole bailout deal would see its final form only after Greek elections due in April. This timetable has stretched the patience of euro-holders. Investors are also reviewing their expectations for US monetary policy after the publication of the FOMC minutes. Some in the media claim they reveal a higher bar to QE3 than previously interpreted. Indeed, the minutes suggest that the internal debate on QE3 is very much alive, but it remains an option. Moreover, Bernanke restated his dovish stance twice before both houses of Congress after the FOMC meeting.
Although yesterday the euro seemed to repeat the trading pattern of the previous day, this time it did not recover. We now concede corrections to 1.2910 and in an extreme case to 1.2805. On the upside, it would regain its footing only above 1.3195.
Click here to read the full report: Daily forex 02.16.12
Deutsche Bank