Are EUR Bears Losing the Fight?

What ever happened to the Greek haircuts? Market perception saw it as a done deal, where further details were supposedly forthcoming over the past weekend. According to the IIF, negotiations are ongoing and elements of an unprecedented voluntary PSI are coming into place. However, reports suggest bondholders have drawn “a line in the sand” regarding their maximum offer. That cannot be a market surprise. It's now unclear whether an outline deal would be ready for approval by the Euro-zone finance ministers meeting today. It was the original deadline set by the Greek finance minister. Whatever happens, Euro ministers will decide what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package later today.

Confused signals suggest range trading rather than a strong “directional environment” for the markets short term. It's been a battle for both the techie's and fundamentalists of late. With the EUR's one directional play, the single currency has been capable of posting bullish reversal signals outright and against the JPY (two of the most crowded trades). However, declining volumes on rising prices should concern the bulls. It's usually referred to as a bearish indicator.

For the ‘bigger picture' individual, the overall EUR risks may not dampen the bullish enthusiasm of late. Even Greece's failure to agree with the PSI may increase “headwinds” for the currency, wider market sentiment should remain somewhat supported by the possibility of an increased ESM bailout facility and growth signs in the US.

The currency is proving more resilient than many had expected. With the regular stops and offers in place ahead of the psychological and mid-term target of 1.3, the market again will be focusing on the meet in Brussels today. Already this morning, German comments on the possibility of running the ESM and EFSF parallel, is supporting the EUR. The strong German debt auction result is pushing the market to test this option barrier, offer laden 1.3 level.

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