Fundamental Analysis
November 27, 2012 @ 2:09 pm

Euro rally fades as uncertainties lie in Greek debt deal


The rally in the euro after the Greek debt deal news early Tuesday soon lost steam in the European session.

Investors initially reacted positively to news that euro zone finance ministers and the International Monetary Fund  finally reached a deal on Greece after three meetings in the past month. A package of measures was agreed upon that would bring down the country’s debt-to-GDP ratio from an estimated 144 percent to 124 percent by 2020.

Also a plan was drawn up to cut the interest rates on bailout loans, suspend interest payments for a decade, and also give  Greece more time to repay a Greek bond buyback.

However, it is this bond buy-back deal that is causing a lot of uncertainty amongst investors who do not believe this is sustainable.

Many believe Monday’s deal was  just another case of “kicking the can down the road” again while the economic outlook for the euro zone worsens.

Once the euphoria faded from the initial news, euro reversed gains from breaking above $1.30 and eased lower to $1.29565 on trading platform EBS.

Against the yen euro dropped 0.7% to 106.10 yen after hitting a high of 106.95.

The dollar firmed up against the yen to 82.30 in the early Europe trade before easing to a session low of 82.00 but then rose back up to 82.20. Dollar was lifted after Federal Reserve Bank of Dallas President Richard W. Fisher said during a speech in Berlin that he proposes setting limits to quantitative easing as soon as the next meeting.

This type if stimulus measure of quantitative easing usually weakens a currency, so limiting this will help limit dollar depreciation.

Dollar was also boosted after better than expected US durable goods orders data. (0.0% versus -0.7% expected, previous 9.9%, revision 9.2%) (m/m)

Sterling was buoyed by satisfactory GDP data that showed the UK grew by 1% in the third quarter. GBPUSD traded as high as mid-$1.6050.

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