More Cuts for Greece, But the Euro Isn't Impressed

Includes: ERO, GRDOW
by: Marc Chandler

As was widely expected, Greece has announced another package of savings, roughly split between tax hikes and spending cuts, that projects to save another 4.8 bln euros, which is roughly 2% of GDP. The measures are harsh, but it is still too soon to expect Europe to provide anything but verbal support and solidarity. Nor can there be any money forthcoming from the Greek PM's visit with the German Chancellor on Friday.

The key now is implementation. As we have argued, that is why March 16th is important. It is the first status report of the implementation. In January, due to a one-off corporate tax, Greece appeared ahead of plan. Many of the initial efforts by Greece appeared aimed at showing immediate results.

This is the Catch-22. If Greece is indeed implementing its programs and the social unrest and deeper economic contraction and higher interest rates have not offset it, Greece may not require financial assistance...yet. On the other hand, many European officials appear to be more sympathetic to material support if Greece was committed (now through implementation) to its austerity plan.

The euro is extending the recovery begun yesterday off the new lows for the move (~$1.3436), and at $1.3670 earlier today set the high for the week. Resistance is seen in front of last week's high just shy of $1.3700. The euro is trading above its 20-day moving average (~$1.3633) for the first time since January 15.

In addition to the Greek news, note that there is talk that the ECB may announce at tomorrow's meeting willingness to lend back to the market the covered bonds it has been buying. Also given the large net short position among non-commercials at the IMM futures, which we assume to be largely representative of many short-term speculators and model driven accounts, and talk now that the US Justice Department may investigate talks of hedge fund collusion, may have favored some paring back of short euro exposure.
Also note that the US jobs data on Friday may be a wild card in the deck. It is a difficult number to forecast even in the best of times and weather appears to have played havoc with a number of recent economic reports.
Disclosure: No positions