Risk appetite kicked off the week as press reports on potential extension for Greek austerity implementation and Spanish bailout request hit the wire during the European trading session:
(EU) EU’s Rehn:
(GR) EU/IMF/ECB Troika inspectors have concluded that Greece needs two more years to complete its fiscal reform.
(ES) Spain looking to secure a guarantee from the ECB to keep risk premiums to around 200bps over credit benchmarks before asking for a bailout.
How to interpret these headlines?
I believe the Euro Crisis is coming to an end soon, especially with the sudden change of tones by both EU and IMF, pleading Germany to offer two years of extension for Greece, and by the looks of it, Greece may just get it. Risk sentiment was further stoked by the potential for a Spanish aid request in November, ending the uncertainty and the ever-so-popular guessing game of when Spain is going to bite the bullet.
Of course, the market never follows the plan, so I expect to see more surprises popping up in the next few weeks; but considering the sentiment of the market and the fact that ECB is involved and launched a new bond buying framework, along with the change of tones by both IMF and the EU Council, it is increasingly possible for a happy ending in Europe, at least that’s what I see with the news at hand… I believe that EUR is a buy on dips, a position that I’ve held since the Draghi “whatever it takes speech” back in late July, and I believe we could see some nice runs in EURUSD and EURJPY to the upside… The key is to wait for pullbacks as the market never moves in a straight line.
I’ll be watching out for further developments in Greece and Spain, but the focus is on Spain as they could end up driving EURUSD back above the 1.3500.
Euro Crisis To End In November?
October 15, 2012 by Leave a Comment