This text is from blog famous currency strategist Joel Kruger .
ALREADY SOLD THE FACT – Hooray!!! We finally have an agreement on Greece, and the Euro has broken back over psychological barriers at 1.3000 on the news. So should the Euro continue to build momentum and extend its current rally? Hardly. Will it? I have no clue. The other week, I established a short position in EUR/USD at 1.2880 and will exit the trade as advertised should the market close in New York above 1.3000 (markets being irrational longer than I can stay solvent and all that stuff). However, I must say that I am more than surprised to see such a wave of optimism from a deal that took forever to get done and once again reminds us just how damaged the situation in the Eurozone really is. Sure, it is a positive whenever EZ leadership is finally able to agree on anything, but come on, should we really be that gung-ho about buying the Euro? So what are the glorious details of the deal?
See daily forex technical analysis made by Joel:
REASONABLE OBJECTIVES – The agreement should bring Greece’s debt ratio to a sustainable path, but the details are still rather hazy (shocking). It appears as though the IMF have endorsed a move for Greece to cut debt by Eur40B, to 124% of GDP by 2020, with a broader commitment of Europe to reduce this ratio even further, to below 110% of GDP by 2022. On paper all of this sounds great (not even), but the reality is that these objectives for debt reduction are almost laughable considering Greece’s debt is projected to skyrocket to 190% of GDP in the upcoming year! How will these objectives then be achieved? Apparently, FinMins have agreed to “consider” lowering interest rates on bilateral loans by 100bps, while extending maturities on bilateral and EFS loans by 15 years, deferring payments on EFSF loans by 10 years, returning ECB SMP profits, and lowering guarantee costs paid by Greece on EFSF loans by 10bps. Further rate reductions will be then be “considered” after Greece has reached a primary surplus. Sounds awesome!!
IN THE BAG – Oh ya…by the way, there is still the formal decision that needs to be made by December 13, subject to the approval of national parliaments, along with the completion of a possible Greece debt buy back program by December 12. IMF’s Lagarde has said that her organization will only officially approve the Greek program when the exact debt buy back amount is disclosed, and the ECB will also at some point need to decide whether it accepts to restore Greek bonds as collateral. And….don’t forget, the aid is still not even then a done deal should agreements fall short of their respective targets over the coming months. What a headache!!!! But go ahead and buy your Euros as this sounds like a major victory and resounding endorsement for Euro strength. I might take a loss and step aside for a bit if the Euro closes over 1.3000 today, but I will happily wait on the sidelines for the next opportunity to aggressively sell the dysfunctional single currency.
