EUR/USD Nov 13 – Weaker Over Greece Concerns

The EUR/USD continues to lose ground as the markets nervously monitor developments in Greece. As expected, a meeting on Monday between European finance ministers and the IMF failed to reach an agreement on Greece’s debt, which would have allowed the release of more funds to Greece under the bailout agreement. With the country expected to run out of funds in a matter of days, pressure is growing on Greece and its lenders to reach an agreement.  In economic news, German ZEW Economic Sentiment came in well below the estimate, fuelling concerns about the health of the German economy.

EUR/USD Technical

• Asian session: Euro/dollar was down slightly, and consolidated around 1.2685. The pair is unchanged in the European session.
• Current range: 1.2624 to 1.2690.

Further levels in both directions:  

• Below: 1.2624, 1.2590, 1.25, 1.2440, 1.2390, 1.2250, 1.2140 and 1.2042.
• Above: 1.2690, 1.2750, 1.28, 1.2880, 1.2960, 1.30, 1.3030, 1.3080, 1.3140, and 1.3170.
• 1.2690 is currently providing weak resistance. 1.2750 is stronger.
• 1.2624 is the next line on the downside.

Euro/dollar weaker on over Greek worries – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:45 French Preliminary Non-Farm Payrolls. Exp. -0.2%. Actual- 0.3%.
• All Day: Euro-zone ECOFIN Meetings.
• 10:00 German ZEW Economic Sentiment. Exp. -9.9 points. Actual -15.7 points.
• 10:00 Euro-zone ZEW Economic Sentiment. Exp. +0.2 points. Actual -2.6 points.
• 15:00 US IBD/TIPP Economic Optimism. Exp. 53.8 points.
• 19:00 US Federal Budget Balance. Exp. -113.5B.
• 20:30 US FOMC Member Janet Yellen Speaks.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• EuroGroup fails to approve more Greek aid: European finance ministers and the IMF met in Brussels on Monday, but failed to reach an agreement on Greece’s long-term debt. Without a deal, no further funds can be released to Greece under the bailout agreement. The finance ministers agreed to give Greece a two-year extension, until 2016, to reduce its deficit to 2% of  GDP. The EuroGroup also decided to postpone a decision on the next tranche of aid until November 20. Greece has warned that it will run out of funds by November 16, but Germany finance minister Wolgang Schauble continues to take a tough line against more aid to the country. He wants to see a complete report from the troika on Greece before more funds are are released. Schauble also said that any new aid for Greece is contingent on the approval of the German parliament. This messy situation will certainly put more pressure on the wobbly euro.
• Greek parliament approves budget: The Greek parliament voted Sunday to approve the government’s 2013 budget. The budget contains harsh austerity measures required for Greece to receive the next tranche of aid under the bailout package. The close vote (167-128) underscores the deep opposition to the budget, which raises taxes and the retirement age, and reduces the salaries of many public workers. After the vote, Greek PM Antonis Samaras declared that Greece had turned a “new page”, but with the troika still unwilling to release more funds, the turmoil in Greece is likely to continue.
• Euro looking vulnerable: Recent developments have not been kind to the European currency, which has been losing ground since last week. Greece is still waiting for more funds, as the EuroGroup and IMF continue to delay making a decision. The fiscal crisis in the US is hurting market sentiment, and the crisis in Spain hasn’t improved, although it hasn’t been dominating the headlines lately. With the euro dropping under the psychological 1.27 level, we could see the currency lose more ground against the dollar.  
• More Gridlock likely in Washington: President Barack Obama won a resounding victory in the US presidential election, but the political map on Capital Hill is essentially unchanged. The Democrats retained control of the Senate, while the Republicans kept their majority in the House of Representatives. This means that Congress will continue to be divided along partisan lines, and if Obama’s first term is any indication, he will likely face more political gridlock in Washington.
• Fiscal cliff crisis looming in US: The so-called fiscal cliff could occur at the end of the year, when tax breaks are set to expire at the same time that government spending cuts are scheduled to take place. Congress and President Obama will have to reach some compromise, otherwise the US could be hit with a recession in 2013. There are three choices that lawmakers can deal with the fiscal cliff, none of which are particularly palatable. We can expect some tough, protracted negotiations between the Republicans and Democrats, as lawmakers scramble to reach a compromise and find a solution to the crisis.
• Will Greece remain in the Euro-zone?: Since the debt crisis hit, this question has often been asked, but such a scenario is certainly a realistic possibility. With Greece facing tremendous political and economic problems, the country’s membership in the Euro-zone seems to be getting more and more tenuous. Recent EU Summits and Euro-group meetings have not led to any breakthroughs, and an agreement on additional funds for Greece remains elusive. Both Greece and Germany may have reached their limits, and there are several other reasons why we could see a Grexit. Time is becoming more and more critical, as Greece is likely to run out of money sometime in November without further aid. The uncertainty will likely keep up pressure on the weakening euro.
• German economy sputtering: The numbers out of Germany are a cause for great concern, as recent economic releases have been dismal, for the most part. Unemployment is up, and PMI data continues to point to ongoing economic contraction. Industrial Production recorded a 1.8% drop, its worst performance since June. The highly-respected ZEW Economic Sentiment had a very poor November reading, and the indicator has been mired in deep negative territory since June. The weak numbers are not just bad for the euro, but could also complicate efforts to provide aid to Greece and Spain. With a worsening economy at home, the German government will be even more reluctant to provide a helping hand to struggling EZ members.

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