Portugal is likely to receive a bailout program in a few weeks. Yields on Portuguese yields refuse to drop from the 7.50%. Bonds on 10 year notes are a good benchmark of confidence that the market has. Ireland received its bailout when bond yields reached 7%.
7% marks the point of no return.
April is critical month for Portugal – it has a big load of debt to pay back – which means it will have to borrow new money to cover it. With yields at these levels, the debt cycle is becoming very vicious and unsustainable.
The Euro has enjoyed the rising price of oil caused by the Libyan crisis to rise against the falling dollar. Also the imminent rate hike, which ECB Jean-Claude Trichet explicitly talked about, have given a big boost to the Euro, which temporary passed the 1.40 mark.
But the same Trichet stopped buying bonds at one point – and this also pushed yields higher. But time is running out for Portugal. April is around the corner. There’s a European summit on March 24th, in the last moment for Portugal. The Euro is likely to take a hit on bailout for Portugal, and will take an even bigger dive if a plan isn’t realized. Here’s one opinion:
Europe’s leaders are well aware of the scrutiny they face from the markets, so they are likely to cook up some kind of deal this week; but without solid proposals for a Portuguese bailout and a wider debt restructuring, the eurozone will be left stumbling towards its next crisis. “I think this could potentially be a very tricky month for the euro – it’s a car crash waiting to happen,†says Michael Derks of foreign exchange broker FxPro. “I think Portugal is weeks away, and I think Portugal will be the trigger.â€
The talk about a bailout for Portugal already began at the beginning of the year as Germany and France reportedly discussed the details. The goal of such a bailout for Portugal is that Portugal would be the third and last country, and that the Spain will avoid the fate of Ireland, Greece and Portugal.
How will the Euro react?
For EUR/US technical levels and an outlook for market moving events, see the EUR/USD forecast.
