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Tuesday, October 16, 2012

EURO Remains Strong on Expectations of Positive News from Greece

Updated October 15, 2012

On Monday, EURUSD closed at 1.2949, 0.03% lower than Friday. Euro continues the uptrend from its support level of around 1.2100 in late July. Greek 10-year yields touched a new low since its last debt restructuring in March this year, falling 47 basis points to 17.58%. The good news is that Greece may not fall through the cracks after all. The latest reassurance comes from the German Finance Minister Wolfgang Schaeuble, who categorically said, “I think, it will not happen that there will be a state bankrupt in Greece.”

What this means is that the policy makers may be charting out some new course for the Greek recovery. Eyeballs are glued in the direction of Troika and the upcoming European Council meeting on October 18-19 in Brussels. The across the board plunge in government securities in the European Union, including the benchmark German bonds, indicates returning investor confidence. While developments on Spain’s front are still uncertain, Greece may get more time to bring its house in order. With this, the possibility of a Grexit has also been pushed away, at least for the time being. Speaking in Singapore, Schaeuble said, “We do not see that there is any sense to speculate on Greece leaving the euro. That would be very damaging for Greece and the euro.”

There are also talks about a common European banking supervisory body in the German quarters with multiple features to reduce financial risk in the market and aid the ailing banks. If implemented, the system will bode well for the Eurozone nations and Euro.

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