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Euro Hits Yearly Highs on Prospect of Greek Deal

Last updated 1/26/2012 5:23 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Prospect of Greek deal lifts EUR/USD through 1.3150
• GE GFK Consumer sentiment improves
• Nikkei off -0.39% Europe up 0.79%
• Oil at $99.97/bbl
• Gold at $1715/oz.

Overnight Eco

• NZD Business NZ Performance of Manufacturing Index (Dec) 51.90 vs. 45.96
• EUR German GfK Consumer Confidence Survey (Feb) 5.9 vs. 5.6
• GBP CBI Reported Sales (Jan) n/a

Event Risk on Tap

• USD Durable Goods Orders (Dec) expected at 2.0%
• USD Durables Ex Transportation (Dec) expected at 1.0%
• USD Initial Jobless Claims (JAN 21)
• USD Continuing Claims (JAN 14)
• USD New Home Sales (MoM) (Dec) expected at 1.6%
• USD Leading Indicators (Dec) expected at 0.7%

Price Action

• USD/JPY drops below 77.50 post FOMC
• AUD/USD rallies to 1.0670 on better risk, report Russian want to diversify
• GBP/USD rises to 1.5700
• EUR/USD blows past 1.3150 on report of Greek deal

Euro soared to fresh yearly highs in mid-morning European trade today after a report by a Greek newspaper suggested that private creditors accepted a lower interest rate in the Greek debt deal. The local newspaper Ethnos stated that PSI investors were willing accept a coupon of less than 4% lifting a key barrier towards an agreement that would allow Greece to restructure its debt. The country faces a 14 Billion euro payment in March which it cannot meet without the help of bailout from EU and the IMF.

If true, the news would greatly ease tension in the EZ credit markets which were becoming increasingly concerned that Greece would default on its obligations triggering a credit event that could severely damage the region’s financial sector. Although a resolution of the Greek debt problem would only provide temporary relief for the EZ, it nevertheless would offer policymaker more time to maneuver and could help the union avoid a contraction in H1 of this year, as investor sentiment and credit conditions improve.

On the economic front, the calendar was very sparse but nonetheless supportive to euro bulls as GFK German consumer sentiment printed much better than forecast. GFK German consumer sentiment for February rose to 5.9% from median estimate of 5.6% while the estimate for January has been revised upward to 5.7%. Economic expectations turned positive to 7.5 from -0.9 the month prior, income expectations rose slightly to 34.1 from 34.0 and buying propensity surged to 41.8 points from 27.4 points hitting its highest level in 5 years.

The news bodes well for German consumption going forward and suggests that the country will be able to avoid a recession despite the constant drumbeat of negative news on the sovereign debt front. GFK noted that part of the improvement in outlook was due to a lull in media coverage of the sovereign debt crisis over the holidays.  

The EUR/USD rose to a high of 1.3172 in the aftermath of the news and could target the 1.3200 level into North American trade if risk flows prove supportive. The pair  is being supported by a troika of positive factors which include the easing of EZ credit crisis, better economic data from core Europe and surprisingly dovish stance from the Fed that has put selling pressure on the dollar.   

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.