Euro Under Pressure As German Support For Greece Not Certain

The euro is under pressure again on Tuesday as a German commitment to coming to the rescue of Greece is not yet certain.

Earlier this morning, German Chancellor Angela Merkel told an audience in Soest, Germany, that the nation will not release funds to Greece until it is presented with a plan to help the beleaguered nation.

The comments come ahead of a state election in Germany on May 6, and voter opposition to the Greek bailout plan is rampant.

Meanwhile, in an interview with Bloomberg News, European Central Bank Vice President Lucas Papademos said that the Greek fiscal package being prepared for May will contain measures to contain the risk that the crisis will spread to the rest of the euro zone.

Also, speaking before an audience in Athens, George Provopoulos of the Greek central bank said that Greece needs to surprise the markets by undertaking deeper than expected budget cuts so as to reinforce its commitment to reducing its debt.

Although the comments have no bearing on FX, the central banker does make an interesting point. If Greece manages to outdo expectations for its debt reduction, it would indeed bring down yields on government bonds, and help support the euro.

Meanwhile, Papademos’ comments should help alleviate some of the tensions on the euro if he proves to be correct. Unfortunately, faith in the European leadership is sparse these days, and until the region presents a solid plan to back Greece, the currency is likely to continue weakening.

As a consequence, risk aversion is high on Tuesday, making for a weaker euro.

EUR/USD last traded down 75 pips at 1.3308 after trading between 1.3299 to 1.3416 so far today. Support lies down at 1.3202, 1.2965 from April 28, 2009, and then 1.2886 from six sessions before that. Meanwhile resistance is at 1.3523, 1.3679 and then 1.3692.

Sterling Under Pressure Despite Upbeat Deficit Data

The pound sterling is under some pressure on Thursday despite a smaller than expected increase in the budget deficit.

Earlier this morning, the Office for National Statistics reported that the UK’s public finances rose to +£25.8 billion in March, short of calls for an increase to +£31.3 billion from the prior month’s revised +£8.0 billion.

The results translate into a £152.8 billion deficit, the largest since World War II.

Public sector net borrowing advanced to +£23.5 billion in March from a revised +£9.7 billion, just short of calls for a +£24.0 billion level.

Simultaneously, the ONS also reported that annual retail sales excluding fuel were in line in March, rising 4.0% compared to the revised 5.0% increase the month prior. Headline sales advanced 2.2%, just short of calls for a 2.3% gain and prior 3.2% increase.

The data failed to have much of an impact on FX, which moved instead on a smaller than expected budget deficit reported simultaneously.

On the news, GBP/USD popped up 29 pips, but continued to head south, last trading lower by 19 pips at 1.5392 after trading in a range between 1.5376 to 1.5473 today.

Short term resistance lies at 1.5507, 1.5524, and the nothing until 1.5575. Support is found at 1.5290, 1.5192, 1.5130 and 1.4799.

The euro’s demise on Thursday appears to be weighing on the currency.

German Media Reports That Greece Will Borrow €90 Billion Over Three Years

The euro continues to be under pressure on Wednesday after more downbeat news on the Greek debt crisis.

Earlier this morning the Handlesblatt news agency cited unnamed sources in the EU as saying that the Greek lending facility could total €90 billion over three years.

Meanwhile, an unnamed German government source said that the final bill could be “twice that much”.

An EU spokesperson vehemently denied the claims, saying the Handlesblatt article is based on “speculation”.

Adding to concerns were comments from the Fitch ratings agency saying that it won’t be long before Greece reaches out for aid from its friends.

In an interview with Bloomberg News, Fitch Ratings Director Christopher Pryce says Greece will likely be forced to activate its emergency lending facility with the EU and IMF within the next two weeks. He also pointed out that Greece needs to raise €11.6 billion by the end of May.

Portugal was also weighing on the euro’s gains on Wednesday after the EU said the nation may not meet 2010 budget goals.

Earlier this morning EU Monetary and Economics Commissioner Olli Rehn told audience in Brussels that Portugal will likely need to adopt additional measures in 2010 to meet its budget obligations, and that the economic forecasts which the nation had incorporated were too optimistic.

Rehn also said that financial aid needs to become “unattractive”, but declined to comment on how this could be done.

Both comments are weighing on the euro, which should be gaining on the back of declining risk aversion on the USD.

EUR/USD last traded lower by 3 pips at 1.3610 after trading between 1.3600 to 1.3665 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 1.3692, 1.3818 from March 17 followed by 1.3839 from February 9.

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.

Euro Moves Higher After Strong Economic Data

The euro is making some head way on the back declining risk aversion, bolstered by an upbeat employment report out of Germany, and strong euro zone CPI.

According to local authorities, German unemployment declined by 31k jobs in March, against expectations for a 7k increase and the deeper than the prior month’s 1k shortfall. The unemployment rate fell to 8.0% despite calls for no change to the unrevised 8.2% level, and the revised 8.1% rate from February.

Adding to the euro’s gains on Wednesday was a stronger than expected inflation report out of the euro zone earlier this morning.

According to Eurostat, the euro zone CPI estimate suggested a 1.5% annual inflation rate for March compared to calls for a 1.1% level and the prior month’s 0.9% rate.

The results increase the probability of an interest rate hike from the European Central Bank, a development which is positive for the European currency.

Also adding to the euro’s gains were comments from European Central Bank President Jean-Claude Trichet telling reporters in Stockholm that he expects Greek bond yields to decline, as market participants take into account the country’s debt reduction efforts. He added that he welcomes the expertise of the IMF in helping Greece tackle its budget problems.

The comments are good for the euro, in that if Trichet is right, the currency stands to regain some of its losses as bond yields increase in the euro zone, making investments in the region more attractive. Stay tuned.

EUR/USD last traded higher by 72 pips at 1.3485 after trading between 1.3385 to 1.3489 so far today. Short term support lies at 1.3268 and then 1.3247 from May 6, 2009, followed by 1.3213 from two days before that, while resistance is at 1.3569 followed by 1.3818.

Euro Claws Back Losses After ECB Agrees to Accept Greek Bonds

The euro is clawing back the day’s losses ahead of a critical European Union Summit in Brussels on Thursday, and is now in positive territory against the USD after the ECB offered an olive-branch to Greece.

Earlier this morning, ECB President Jean-Claude Trichet announced that the central bank will make loans against collateral graded as low as BBB-, but that the amount of loans obtained will be less that the higher AAA graded paper.

He added that interest rates remain “appropriate”.

Meanwhile, ahead of the EU summit in Brussels, German officials continued to reaffirm that aid to Greece must only come once the country fails to raise capital from the private sector.

Earlier this morning, EU Monetary and Economics Commissioner Olli Rehn told parliament that the EU Summit comes at a critical time for the euro zone, and that the monetary union must be defended. Regardless, all eyes and ears will be on the EU Summit, where a formal stance on the issue could be decided.

Speaking to reporters ahead of the start of the meetings Prime Minister George Papandreou is seeking support from the euro zone nations, so that the nation can raise the necessary capital to tackle its budget problems.

Also speaking at a press conference in Amsterdam earlier this morning, the central banker said a package led by the International Monetary Fund, and backed by member euro zone nations would be idea.

The comments go against the stance of European Central Bank Vice-President Jean-Claude Trichet, who has been pushing for a purely European solution, so as not to damage the credibility of the European Monetary Union.

In the overnight, and ahead of the EU summit in Brussels on Thursday, the euro declined to $1.3284USD, its worst level versus the greenback since May 7, 2009.

Nevertheless, with the ECB move resulting in Greek government bonds becoming less unattractive to investors, the euro has managed to recover, with EUR/USD last trader higher by 51 pips at 1.3366 after trading between 1.3284 and 1.3371 so far today.

Short term support lies at 1.3247 from May 6, 2009, and then 1.3213 from two days before that, while resistance is at 1.3569 followed by 1.3818.

Going forward, talk from the summit, is likely to be a hot topic for euro trader over the next several days. If the euro zone doesn’t come to the aid of Greece, expect the currency to decline further.

Euro Under Pressure As EU Summit Looms

The euro is under additional pressure on Monday with focus lying on the upcoming EU summit this week, where the fate of a European-led aid facility to Greece remains increasingly uncertain.

According to Deutchlandfunk over the weekend, German Chancellor Angela Merkel said she has made no decision on whether to support EU aid or to back an IMF solution for Greece.

The Chancellor warned of raising “false expectations” for a Greek solution at the March 25-26 EU Summit, pointing out that the issue isn’t on the agenda.

Reacting to the comments this morning, European Commission remains hopeful that an aid facility for Greece can be set up despite German opposition.

According to a statement released by the office of President Jose Manuel Barroso this morning, the President is “not disappointed” by comments made by German Chancellor Angela Merkel seeming to back away from aid to Greece over the weekend. Instead, the President says he remains hopeful that a solution can be agreed to in the coming days.

The EU summit is seen by traders as the key event where the fate of Greece will be decided. If an agreement to set up a facility is struck, expect the euro to regain some of its recent losses. On the other hand, failure for policymakers to reach an agreement could weaken the euro further.

The USD is broadly stronger on the back of the rising risk aversion, with Euro/USD down 0.16 cents to 1.3514, USD/CAD up 0.29 cents to 1.0202, USD/Yen up 0.04 points to 90.58, GBP/USD down 0.27 cents to 1.4986, and AUD/USD down 0.43 cents to 0.9111.

EUR/USD has traded in a range of 1.3498 to 1.3547 so far today. Short term support lies at 1.3500 and 1.3442. Resistance comes in at 1.3547 and 1.3586.