EUR/USD Dec 4 – Firm As Greece Initiates Buy-back Scheme

EUR/USD remains firm, as the pair was trading close to a six-week high. The euro has looked sharp, rising about 150 points against the dollar in the past week. After the German parliament gave approval to the Greece debt agreement, Greece has now initiated a buy-back scheme from private investors, as part of the deal. In the US, the ISM Manufacturing PMI dipped below the 50 point line, dropping to its worst level in over three years. Back in Europe, Spain posted its second strong release this week, as Spanish Unemployment Change was well below the forecast.

EUR/USD Technical

• Asian session: Euro/dollar was steady, as the pair consolidated at 1.3059. The pair has edged higher in the European session.
• Current range: 1.3030 to 1.3080.

Further levels in both directions:  

• Below: 1.3030, 1.30, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.3080, 1.3140, 1.3170, 1.3290 and 1.34.
• 1.3030 has strengthened on the downside as the pair improves.
• 1.3080 is under pressure on the upside. 1.3140 is the next line of resistance.

Euro/dollar steady as Greece implements buy-back program– click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 Spanish Unemployment Change. Actual 74.3K. Exp. 90.0K.
• All Day: ECOFIN Meetings.
• 10:00 Euro-zone PPI. Exp. 0.0%. Actual +0.1%.
• 15:45 US FOMC Member Daniel Tarullo Speaks.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Greece begins buy-back program: Greece has offered to purchase 10 billion euros of its national debt, as part of the new bailout agreement aimed at resolving the country’s severe debt crisis. Market sentiment was positive after the Greek government offered a premium on markets prices for Greek bonds. The EUR 10 billion buy-back could allow Greece to retire up to EUR 30 billion worth of debt. Greece is expecting the next installment of aid on December 13, and the buy-back is scheduled to be completed by December 17. In a sign that public declarations are not engraved on stone, German Chancellor Angela Merkel hinted that Berlin could consider a write-off of its Greek loans. Germany has strenuously objected to such a haircut, but may have to show more flexibility if Greece is to stand on its financial feet.
• German parliament gives nod to Greek deal: The agreement on Greece’s debt passed a major hurdle as German lawmakers overwhelmingly approved the deal, by a vote of 473-100. The agreement includes a debt buy-back scheme and an interest rate cut on loans to Greece. The approval by the German parliament clears the way for Athens to finally receive the 44 billion euro bailout package agreed to by the troika.
• Euro on a roll: Despite delays over the Greek bailout package and plenty of disappointing economic data out  of the euro-zone, the euro has enjoyed recent success against the US dollar. EUR/USD has climbed over three cents since mid-November, as the euro has now crossed the important 1.30 line. If the Greek debt agreeement proceeds according to plan, look for the euro to benefit. As well, EUR/USD could make further inroads if the US fiscal crisis is averted, as the appetite for non-US assets would increase.
• Cyprus may request bailout: With the Greece debt deal moving along and Spain loooking to tap into its rescue fund, the next candidate for a bailout could be Cyprus. Euro-zone finance ministers are considering a proposal whereby the island zone member would receive 10 billion euros in aid to refinance its banks, which have been badly hurt by the euro-zone debt crisis. No final agreement will be made prior to an audit of Cypriot banks,which should be completed in the next few weeks.
• Tough talk on Capital Hill: Gearing up for a tough fight over the fiscal cliff, Republicans and Democrats have employed some harsh rhetoric against each other. The Democrats have demanded $1.6 trillion in additional taxes over the next 10 years, with higher taxes on those earning over $250,000. The Republicans oppose any tax hikes, and have offered $800 billion in new tax revenue from spending cuts and closing tax loopholes.  The markets are hoping that the politicians will find a compromise and avoid a crisis which could threaten the fragile US recovery. Both parties are likely to continue talking tough for a while yet, as the fiscal cliff clock ticks louder every day.

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