Euro Crisis To End In November?


Zero spam.

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:

3rd Party Advertisement
  • Reiterates aim to complete talks with Greece by mid-Nov;
  • Considering giving Greece more time for fiscal reforms
  • Hope to reach pact with Greece on fiscal goals and structural reforms this week
  • ESM can activate leverage function whenever needed.
  • Spain govt is open to considering a bailout request.

(GR) EU/IMF/ECB Troika inspectors have concluded that Greece needs two more years to complete its fiscal reform.

  • IMF seeking about €50B in debt restructuring for Greece
  • Inspectors said to have asked eurozone finance ministers last week to give Athens two more years.
  • Report noting that different bodies within the troika hold differing views on the progress made by Greece toward debt reduction. ECB and the IMF believe that Greece’s debt will be about 140% of GDP in 2020 while the European Commission is more optimistic with a target of 128%.
  • According to the report, the IMF is continuing to seek debt restructuring for some of Greece’s debt, while European officials are only willing to consider lower interest rates and longer debt repayments.
  • Officials believe that the most that Germany would be prepared to offer Greece more time to pay €52.9B in bilateral loans that it received in 2010.
  • Close to €50B in Greek debt is held by the ECB.

(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.

  • Spain would like the ECB to intervene via OMT in secondary markets to keep risk premiums from going above 200bps
  • Report insists this the real reason for the delay in Spain asking for a bailout, not the regional elections on Oct 21st and Nov 25th in different parts of Spain or the German Chancellor Merkel wants a delay to package an entire Club Med deal
  • Currently risk premiums hover around 417bps

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.


Forex Weekly Outlook May 22 ~ 26, 2017
Forex Weekly Outlook – May 15 ~ 19, 2017
IMF cuts global growth projections amid China slowdown, rock-bottom oil prices
World economy risks another crash unless they continue to support growth with low interest rates: IMF
Central banks cannot keep pumping cheap credit into series of asset bubbles
About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

You can find more information about me on my Google Profile.

Speak Your Mind



Zero spam.