EUR/USD: Euro Climbs on Hopes of Greek Deal
The common European currency gained support from optimism that the last attempt to find common ground between Greece and its international creditors -- the European Commission, European Central Bank and International Monetary Fund -- may finally reach a successful conclusion.
The euro gained 0.59% on Friday morning and traded at $1.1097.
The Alexis Tsipras government presented an officially signed copy of a plan of reforms, spending cuts and tax reforms worth approximately €13 billion to its international lenders a couple of hours before the midnight deadline. The new proposal, prepared with help from French advisers and experts, includes changes to VAT rates, concessions on pensions and raising the retirement age to 67 by 2022.
In addition, Greece has also proposed to cut military spending by €100 million in 2015 and by €200 million next year, reforming and improving tax collection and fighting tax evasion, and will go ahead with the privatization of certain state assets, including regional airports and ports.
In exchange for the adoption of these measures, Greece is hoping to receive approximately €53.5 billion in rescue funds needed to prevent complete bankruptcy of the cash-strapped nation and its exit from the euro area.
Officials from the creditors' institutions will now assess the revised Greek reform program and forward their recommendations to euro zone finance ministers scheduled to meet on Saturday afternoon and to the special summit of European leaders called for Sunday.
The Greek Parliament is expected to approve the measures on Friday and the prime minister will also attend a meeting of SYRIZA lawmakers on Friday before traveling to Brussels for another extraordinary gathering of all 28 EU leaders on Sunday.
If these preparations and arrangements don't work in accord, Greece will be unable to meet its upcoming €3.5 billion bond repayment to the ECB on July 20.
Yesterday the EURUSD initially rose but found enough selling pressure at 1.1097 to give all its gains back to the market and closed in the red slightly below the open of the day, creating a doji candle pattern. Today we might see another attempt in the bullish side with the following resistance levels to watch: 1.1158 (50 day moving average), 1.1185 Fibonacci level (23.6) and a daily resistance at 1.1236. Do not forget the Greek summit on Sunday the 12 of July.
Dijsselbloem Says Judgment on Greek Plan Probable Friday
Eurogroup chairman Jeroen Dijsselbloem said a first judgment on Greece’s proposals to win a new bailout will probably be handled down Friday, as a deadline to keep the nation in the euro region nears.
Dijsselbloem forwarded Alexis Tsipras’s plan to the European Commission, the International Monetary Fund and European Central Bank late on Thursday, he told reporters in the Hague.
“It’s an extensive piece of text, but the content really needs to be judged,” Dijsselbloem said.
Tsipras’s government offered to meet most of the demands made by creditors in exchange for a bailout of 53.5 billion euros ($59.5 billion). The plan will face its first hurdle in the Greek Parliament on Friday. Broad support in Greece for the plan would give the reforms more credibility, according to Dijsselbloem.
“But also then we have to see whether the proposals are good, if it gets Greece really out of the crisis,” Dijsselbloem said.
Deutsche Bank AG strategist George Saravelos said in a note to clients that a first reading of the proposals found them to be constructive and indicative of government willingness to reach an agreement. European leaders will deliberate on the plan over the weekend.
“It’s a far reaching decision we’ll have to take,” Dijsselbloem said. “So let’s do it thoroughly.”
What and When? Countdown to Deal or Flop Between Greece and Europe
After five months of countless meetings, talks, anger, disappointment, acrimony, deadlock, two Greek finance ministers, the bank shutdown and the referendum in Greece, the following events may finally bring a resolution to the crisis:
Friday, July 10 at noon in Brussels: European Commission President Jean-Claude Juncker, Eurogroup Chief Jeroen Dijsselbloem, IMF Managing Director Christine Lagarde and ECB President Mario Draghi are due to discuss the new Greek proposals.
Friday, July 10, 3pm in Athens: Greek parliament to discuss the Alexis Tsipras government's proposals and vote on them. The vote is expected late in the night
Saturday, July 11, 3pm in Brussels: Eurogroup meeting (euro zone finance ministers) to discuss Greece's proposals
Sunday, July 12, 4pm in Brussels: EU leaders summit of all 28 members of the European Union
Monday, July 20: €3 billion bond payment due to the ECB
Thursday, August 20: another €3.2 billion bond held by the ECB matures
Furthermore, Greece is now in arrears with the IMF as it had missed a June €1.6 billion payment
The pair reported a decrease of 40 pips on Thursday and then the euro was trading at a price of 1.1035 at the end of the session. The trading took place within the final values 1.1122 and 1.0991. Overall prospects for the EUR / USD remains negative, and the levels at 1.1090 / 1.1105 - indicative for the dominance of the bears.
Hopefully Greece and the Eurozone will reach an agreement over the weekend or we can expect another big drop on Monday.
EUR/USD is bullish and broke the resistance level 1.1100, RSI is bullish, but the market is moving with cautious I think it is all due to the Greek crisis let's see what will happen in the weekend.
Here Is How To Trade Greece's End-Game In FX - BNPP
In its last week's FX note to clients, BNP Paribas recommends selling EUR/JPY as the best FX play to trade the outcome of the Greek Referendum. Today, BNPP is out with its game-plan to trade this weekend’s eurozone leaders' summit which BNPP sees as the end-game for Greece.
The stakes are high for this weekend:
"The stakes are high for this weekend’s eurozone leaders’ summit. The message to Greece is clear: a deal must be reached or it leaves the eurozone. This situation is likely to produce a binary outcome for markets, including FX. We assess the best ways to trade this outcome over the weekend," BNPP notes.
We have now come to the end of the road:
"We have seen many ‘deadlines’ during the Greek crisis, but this time we seem to have come to the end of the road and the creditors have, for the first time, presented Sunday as a firm deadline. The decision to invite all 28 countries to deal with the Greek crisis at the EU summit on Sunday is also unprecedented," BNPP argues.
1. A Deal. Sell EUR relief rallies against USD, GBP:
"This scenario produces a relief rally across most asset classes. European equities would rally and peripheral spreads would narrow. It is unlikely the EUR would appreciate broadly as it is difficult to argue that the single currency is trading at a discount to valuation. Outcome 1 would provide a catalyst for the re-establishment of EUR-funded carry trades," BNPP advises.
"Accordingly, the EUR should depreciate, especially against higher yielders such as the USD and GBP. A clear exception would be EURCHF, which is likely to rally in this scenario. The CHF has served as a safe-haven – as indicated by the net long exposure of +24.," BNPP projects.
2. No Deal. Sell EUR/JPY:
"This is the scenario the market fears...We view that EURJPY shorts would perform even better in this scenario, as an anticipated delay to Fed tightening would weaken the USD," BNPP advises.
EUR/USD: Euro Ends Ultra-Volatile Week in Plus, Keeps Watching Greek Soap Opera
The euro slightly gained against its US peer during this volatile week as Friday fueled optimism that Greece was finally making progress in its efforts to secure funding and stay in the currency zone.
The shared currency added 0.40% and ended Friday at $1.1158 against the greenback. Exactly seven days ago, it had landed at $1.1114.
Still, it's down more than 17% year-to-date.
Roller coaster ride
The EUR/USD pair reached its weekly low of $1.0916 on Tuesday and almost a two-week high of $1.1214 on Friday.
This illustrates how topsy-turvy the week was - after months of tiresome talks, the euro-dollar volatility soared to 12.4% on Wednesday, the highest since June 2012 according to the three-month implied volatility, a measure of anticipated price swings in the euro-dollar exchange rate, based on options.
As for the daily performance, the euro took a ride on a virtual roller coaster, moving in lockstep with the overall mood on the markets, which were watching the seemingly never-ending 'Greek soap opera'.
Somewhat surprisingly, the shared currency managed to end Monday 0.46% higher, partly recovering from a steep weekend slide following Sunday's referendum, in which a majority of Greek voters said no to austerity measures demanded by the creditors
However, Tuesday brought bears back and the euro finished the day 0.34% lower. At that time, markets had reacted to an unsuccessful Eurogroup emergency meeting, as the newly appointed Greek Finance Minister, Euclid Tsakalotos, failed to present his peers with a fresh austerity plan - a remarkable move, given the urgency of the crisis. (Read more here)
Hilariously, he only brought to the meeting hand-written remarks with a hotel logo on them, which, captured by a press photographer and circulated on the internet, sparked a wave of jokes.
Wednesday, however, brought some relief, and the euro gained 0.57%, as Athens officially asked for yet a third bailout, promising to deliver a comprehensive reform draft the next day. (Read more here)
Glimmer of hope
Markets viewed this step as a glimmer of hope in the darkness, despite a Reuters poll showing for the first time ever that a majority of economists believe that there is more chance of Greece leaving the euro zone than staying. (Read more here)
On Thursday, the single currency swung between gains and losses, ending the session 0.08% lower. The day was dominated by some openly pessimistic comments both from the European Central Bank (its president Mario Draghi sounded particularly depressed) and from EU leaders.
Still, Thursday's evening trading saw some positive rumors, with sources saying that Athens was - with the vital help of French economic experts - preparing a reform plan to avert a disastrous exit from the currency zone.
The document was indeed, sent to Eurogroup chief Jeroen Dijsselbloem on Thursday night. What's more important, it was more ambitious than previously thought - the austerity measures totaled €13 billion in tax hikes and budget cuts and included such deep concessions as a promise to cut protected privileges such as pensions, tax breaks for the country’s islands, and limits on military spending.
However, it won't be for free - in exchange, Athens asked for its third bailout from the EU's rescue fund, in the form of a three-year €53.5 billion loan deal.
The document has been uploaded online by German tabloid Bild.
As a result, the euro soared across the board, ending Friday 0.88% higher.
Now, all is in the hands of the EU leaders, who were summoned to discuss the proposal from Athens during the weekend.
"If there is a deal struck at the weekend, the upside for the euro is limited given other things going on," UBS currency strategist Geoffrey Yu said. "But if something bad happens, we would see the euro give up some of its gains."
Even other analysts warn that a potential rally - once the deal is struck - would be capped, given the European Central Bank's (ECB) ultramassive bond-purchasing program.
"I am really not sure how far this Greek-inspired rally will last. Maybe we get to $1.14-1.15, but given liquidity is getting thinner as we move into the summer holidays, there is a risk of overshooting," Ian Gunner, portfolio manager at Altana Hard Currency Fund, told Reuters.
Still, in the longer term, the EUR/USD pair is poised to reach parity at the year-end, ING wrote, even if a Greek deal is eventually reached. "A Grexit is the alternative scenario and is shared by the FX options market with the large negative skew of expected probabilities. Yet our baseline scenario is that a last-minute compromise can be reached," Chris Turner of ING wrote in a note.
EUR: The Sum(mit) Of All Fears - Credit Agricole
The Greek government has submitted its latest reform proposal to its creditors. Various creditor reports suggest that the report is similar to the one offered by the European Commission on June 26 and subsequently rejected at the July 5 Greek referendum. Risk appetite seems to be recovering on the back of hopes for resolution over the weekend. Market sentiment seems also supported given the latest measures by the Chinese officials to prop up the country's stock market.
Despite the latest developments some uncertainty should linger. The Greek reform proposal will have to be approved by the troika today and passed on to Eurogroup ahead of their meeting on Saturday. While there maybe scope for disagreement between the European Commission, the ECB and the IMF especially when it comes to the sustainability of the Greek debt, we suspect that the troika could give the latest proposal a more positive assessment. In turn this could increase the chances of a deal over the weekend.
Also today, the Greek parliament will vote on the proposal. Syriza has 149 seats plus 17 from its coalition partner - the Greek nationalists. The opposition parties as a whole - ND, Pasok and Ta Potamo - have ~94 seats. It is a 300 seat parliament and we need 151 for the vote to pass (unless it is a qualified majority, which we doubt). We strongly suspect that the purpose of the July 5 referendum was, among other things, to strengthen the internal position of Tzipras inside the party. In turn, Tsipras' popularity could guarantee that the defections (from the ranks of the more extreme Syriza factions) need not be so numerous today. In addition, we would still think that the opposition parties will vote for more fiscal austerity and reforms. Net, net, it would seem that Tsipras will have enough votes to pass the reform bill.
Nevertheless, we believe that any potential relief rally vs. USD should be shortlived, however, with investors quickly re-focusing on divergent monetary policy outlook between the dovish ECB and the data dependent Fed. Needless to say, if the Greek proposal fails the troika hurdle today and/ or the weekend negotiations still do not produce a deal, EUR should lose more ground and open sharply lower next week.