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Euro Stalls Ahead of 1.3300 As Germany Threatens to Withhold Funds

Last updated 2/8/2012 5:21 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro at 8 week highs but stalls ahead of 1.3300 as Germany proposes withholding funds
• GE Trade Balance in line
• Nikkei up 1.10% Europe up 0.88%
• Oil at $99.32
• Gold at $1749/oz.

Overnight Eco

• JPY Current Account Total (Yen) (DEC) 752B vs. 625B
• JPY Trade Balance - BOP Basis (Yen) (DEC) -145B vs. -135B
• JPY Eco Watchers Survey: Current (JAN) 44.1 vs. 47.4
• JPY Eco Watchers Survey: Outlook (JAN) 47.1 vs. 45.5
• CHF Unemployment Rate (JAN) 3.1% vs. 3.1%
• EUR German Current Account (euros) (DEC) 12.9 Vs. 13.7B
• EUR German Trade Balance (euros) (DEC) 19.3B vs.15.2B

Event Risk on Tap

• USD MBA Mortgage Applications (FEB 3)
• CAD Housing Starts (JAN)

Price Action

• USD/JPY goes through 77.00
• AUD/USD news yearly highs at 1.0840
• GBP/USD breaks above 1.5900
• EUR/USD new 8 week highs but stalls ahead of the 1.3300 level

A lackluster night of trade in early European session with EUR/USD trapped in a very narrow 20 point range as currency traders awaited further progress from Athens.  The EUR/USD rose to an eight week best in late Asian and early morning European trade hitting 1.3283 as risk flows and continued enthusiasm over the prospect of a Greek deal propelled the pair higher. However, the euro stalled ahead of the 1.3300 barrier on news of possible new demand by Germany.

According to Financial Times Deutschland Germany’s Finance Minister Wolfgang Schaeuble is considering postponing  a large part of new  aid to Greece in order to pressure Greek authorities on further fiscal reforms. The German finance minister wants to split the new bailout package into two parts. The first part, consisting of E30 billion earmarked for Greek banks that participate in the private sector debt reduction deal, could be released within days. However, Mr. Schaeuble would delay presenting legislation to the German parliament for the larger share of the new bailout money, currently estimated at around E100 billion, thus effectively holding up its approval on the European level.

Mr. Schaeuble’s Machiavellian tactics new  could complicate the delicate negotiations by enraging the Greek opposition parties which are already reluctant to make further cuts in Greek budget. The opposition parties have reportedly received  the draft of the proposed restructuring deal and are to meet with Prime Minister Papademous at 13;00 GMT. However, they may balk at supporting the plan if they have no assurance of receiving the bailout funds for the struggling Greek economy. The latest tax revenue data for January has shown that Greece once again missed its mark  in collections by 1 Billion euros as the country enters the fifth year of recession.

Some analysts have posited that Northern European officials may have come to terms with the idea of Greek exit from the EZ, with various media sources reporting that governments have already drawn up contingency plans for such a scenario. That may explain the latest hardball actions by Mr. Schaeuble, but it also exposes the EZ to unknown credit risk in case of a hard default by Greece. Officials in EU appear confident that they can weather the financial storm of a Greek default, but no one knows the possible fallout from such scenario and currency markets could react very negatively if the specter of contagion becomes real.

In North America today the calendar is barren and Greece will continue to be the prime focus of trade. If the negotiations in Athens show no promise of agreement the EUR/USD could quickly unwind yesterday’s rally dropping back through the 1.3200 level 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.