Euro Bounces on Details of Greek Lending Facility

The euro is finding some support on Monday after European leaders reached an agreement over the size of the Greek emergency lending facility.

Eurogroup President Jean-Claude Juncker told reporters in Brussels on Sunday that euro zone finance ministers have agreed to provide Greece with up to €30 billion this year in bilateral standby loans if necessary, adding that the loans contain “no element of subsidy”.

Meanwhile, EU Economic Commissioner Olli Rehn said that the Greek loans would be fixed according to an IMF formula and would be at a rate of approximately 5%. He added that the program will be activated “when needed”, and that the loans will be covered by the EU and IMF at a 2:1 ratio.

Reacting to the news on Monday, ECB President Jean-Claude Trichet said that decisions being reached over the Greek emergency lending facility are “positive”, and that he expects all parties involved to keep up their responsibilities, including Greece, on reducing its budget deficit.

Meanwhile, EU spokesperson Amadeu Altafaj affirmed that the interest rates set on a lending facility for Greece will be set independently by the EU and IMF, and may differ between both organizations. Nevertheless, the decision to active the lending facility will have to be made by the Eurogroup acting unanimously.

The comments continue to add credence to some of the gains in the euro seen this morning, however they are not surprising given the need for an appearance of confidence in this situation.

The key here could be the 5.0% interest rate being discussed, since up until recently, the markets were offering a rate of around 7.0% on Greece bonds. This could be viewed as a subsidy by some euro zone nation, a move which would constitute a violation of EU law.

Nevertheless, EUR/USD last traded higher by 85 pips at 1.3585 after trading in a range of 1.3492 to 1.3692 so far today.

Short term support lies at 1.3283, 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3818 from March 17 followed by 1.3839 from February 9.