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Euro Gaps Lower As Greek Debt Deal Not Done

Last updated 1/23/2012 3:11 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

@import url(/css/cuteeditor.css); The EUR/USD gaped lower at the open of this week’s trade after negotiations between private sector creditors and Greek government failed to produce an definitive agreement this weekend. Institute of International Finance chief Charles Dallara, who had been negotiating on behalf of the private credtitors with Greek officials regrading the bond-swap plan, left Athens Saturday due to differences over the interest rate the new bonds would pay.

The two sides appeared to be closing in on a deal that would give creditors new bonds paying a 3.5% coupon for shorter maturities and rising to a cap of 4.6% on longer-dated bonds. The average coupon would amount to around 4%. Speaking to television station Antenna, Mr Dallara said, "Our offer, delivered to the (Greek) Prime Minister, is the maximum offer consistent with a voluntary PSI deal," adding, "I remain quite hopeful that various efforts will come together." 

However, people familiar with the matter said the IMF and Germany don't believe Greece's debt would return to sustainable levels if the average coupon on the new bonds is around 4%, pushing for a lower coupon. Greek newspaper Kathimerini reported that the European Commission, International Monetary Fund and European Central Bank requested a the report Friday to determine if the PSI will make the Greece’s debt sustainable.

The uncertainty regarding the deal between  private sector investors and Greece has renewed concerns regrading the viability of Greece as an EU member going forward. The  country is saddled with 169% debt to GDP ratio and faces a 14 Billion EUR repayment in March which it cannot meet unless it receives another tranche of bailout funds from EU. The EUR/USD remained under pressure at the start early morning European trade but appeared to have stabilized at the   1.2900 level as it tried to fill the gap left from Friday’s close. However, unless the Greek debt issue comes to a resolution the pair is unlikely to generate much upward momentum and could come back to test the session lows at 1.2875 as the day proceeds.

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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.