European Union officials decided extra financial support for Greece will come from both official and private investors, with the later being a voluntary rollover of existing Greek debt in accordance with the ‘Vienna Initiative’ of 2009. A resolution was struck after the ruling by Germany to ease its demands for private sector input in a debt restructuring and brought some temporary respite to markets on Friday.
The statement today that additional financial aid and a second bailout package will not happen until early next month has disappointed markets and as result we’ve seen cautious trading to start the week. The responsibility is now on the Greek PM Papandreou to obtain approval for additional austerity measures after the recent cabinet restructure and in the face of a no confidence vote tomorrow. In this instance failure to pass the confidence motion might incite a political crisis, leading to possible contagion across the EU.
Europe has set the Greek government until the end of this month to put into further budget cuts and asset sales, with failure to pass further austerity measures likely to lead to a delay of any bailout payments. There will be plenty of racket about Greece over coming days, and is sure to dominate the EU summit in Brussels on June 23-24. However in the meantime the EUR/USD looks like it will settle into a range over the short-term, with support around the 100 day moving average of 1.4165.
EUR speculative positioning is currently around its quarter average, with the market continuing to hold a sizeable long position in EUR/USD according to the CFTC IMM data. The risks remains distorted to the downside as uneasiness about a Greek deal intensifies. If the Greek Prime Minister survives a no confidence movement there could be some short term relief but tensions are expected to persist for a long while yet. In addition, other eurozone countries are not home and dry as Moody’s declaration that Italy’s AA2 government bond rating is on review for possible downgrade.
In addition to the Greek’s parliament vote of confidence tomorrow, we have the German (ZEW), survey first thing that could mean a busy start for the Euro. On Wednesday we have the Bank of England minutes to uncover the latest round of voting in the MPC. What will minutes from the latest policy meeting reveal about the rate outlook in Britain? Continuing on the interest rate theme we have the US rate decision followed by a Bernanke press conference on Wednesday evening (UK time) with US durable goods orders to end the week on Friday afternoon.
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