EUR/USD: Fundamental Analysis
Optimism continues to build up after Greece announced that it would buy back government securities worth around 10 Billion Euros. News that Spain formally asked for a bank bailout to recapitalize its troubled banks also contributed to the momentum. As a result, the Euro extended gains versus its peers in the previous European trading session. The US dollar on the other hand lost as US fiscal talks stalled, increasing chances of the US falling into the so-called fiscal cliff next year. With brighter news in the Euro Zone than in the US, the EURUSD pair is projected to rise further in today’s European session.
Greece’s buyback plan is part of the agreement reached by the Eurogroup and the International Monetary Fund (IMF) last week, as a requirement for the indebted country to receive the next tranche of bailout funds, so that it would not default on its debt obligations. Private holders of Greek debt have until Friday to register their interest to participate in the buyback programme. The European finance leaders themselves have expressed confidence that the deal would run smoothly to widen Greece’s chances of reducing its debt by 2020, as agreed upon by its international lenders. One of them is French Finance Minister Pierre Moscovici who said to reporters: “I’m confident that it will go well,” and that “it seems to be happening under satisfactory conditions.”
Meanwhile, Spain would get the bank bailout funds worth 39.5 Billion Euros next week as agreed upon by the Euro Zone officials during their meeting on Monday. Eurogroup Head Jean-Claude Juncker said after the meeting that Spain had already taken the necessary steps to meet the bailout terms. The bailout funds would be used to recapitalize Bankia, NCG Banco, Catalunya Banc and Banco de Valencia. Following Spain’s bank bailout request, markets are now expecting that it would go for a full blown bailout, which is believed to be bullish for the single currency.
In the US, lawmakers are left with limited time to reach an agreement to avert the fiscal cliff. However, there is still no progress as they could not agree on increasing taxes on the wealthy. The US could be forced into another recession if the fiscal cliff could not be averted, and with an agreement still lacking, the Dollar is seen to come under pressure. Thus, a long position is suggested for the EURUSD pair in today’s European exchanges.
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