Greece Deal Ahead? EUR/USD Thinks So, Re-Pricing Lost Faith

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Includes: ERO, EU, FXE, UDN, UUP
by: FXstreet

Market participants managed to unwind the initial harm created by the early failure of EU finance ministers to strike a deal on Greece's debt. The euro has once again found plenty of bids on the assumption that by next Monday, the money for Greece will be unlocked. The EUR/USD weekly high stands at 1.2868, achieved in Asian hours, following a NY close at 1.2833.

After the recovery in sentiment, Westpac FX strategist Sean Callow, notes:

This is probably the right response, with the Eurogroup indicating that agreement was close and German Chancellor Merkel talking about reducing interest payments Greece is due to pay bailout fund EFSF, which we would view as a much better option than demanding yet more fiscal pain.

BKAssetManagement Founder, Kathy Lien, believes the price action in the EUR/USD is telling us "that investors remain hopeful because 'what's a few more days when we have waited months for a deal?'."

On Greece, there are several option on the table, with the WSJ citing three, which include a debt buyback program, loan interest cuts to 0.25%, which may potentially save the country over 44 billion euros, and a return of SMP profits.

As traders await for a decision about the fate of Greece, they will be entertained during today's (Thursday) European session by various eurozone November flash PMI readings, followed by the German IFO report on Friday. "If there is a material decline in the PMI or IFO reports, fear of a sharper slowdown in German growth could weigh on the euro," Kathy adds.

In the U.S., currency traders will enjoy the Thanksgiving breakout, thus expect volatility and liquidity to be thin in the market.

According to in-house technical expert Valeria Bednarik, regardless the Greek chaos, the pair's trend continues to be bullish at least in the short term, with the price suggesting it wants to continue higher after taking out 1.2840 static Fibonacci resistance level, she says.

Mr. Callow also believes that EUR should be supported ahead of the 26 November meeting, "though we remain inclined to sell rallies on a multi-week outlook" he notes.

Meanwhile, FXWW Founder Sean Lee, has been recently highlighting that it makes all the sense in the world to be overall short and bearish the EUR given the situation in Greece and Spain, but as he notes, "these shorts can easily get squeezed when markets are thin and liquidity worsens." He thinks sellers might get good levels on exhaustive stop-loss spikes.

Technically, Sean notes: "Prices have been oscillating around the 200-day MA and this indicator seems to be losing its technical relevance and a 1.2650/1.2900 containment range looks increasingly likely."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.