EUR in No Man's Land: Jaded Traders Headline Watching

• EUR ping pong price action expected by jaded traders

• Greece delivers: Is it enough?

• EZ/EU Officials see deal unlikely today

• Greek investors optimistic: stocks up, spreads tighter

Greece has followed through on demands by EU officials and delivered new proposals ahead of todays supposedly ‘make or break’ Euro emergency summit. The market is getting mixed messages on whether there will be a Greek solution found later this afternoon.

European Commission President Juncker say’s he does not know if there will be one, while EU Economic Commissioner Pierre Moscovici said he was “convinced” that eurozone leaders holding an emergency meeting in Brussels would find a way out of the Greek crisis. The talks will start in a couple of hours and are expected to go well into the night. It does seem that the new proposals may be well received and there could be an eleventh hour deal in the works. However, asset prices will obviously be susceptible to Greek headlines. Investors should be preparing for ‘ping-pong’ price action.

Earlier this morning the ECB supposedly approved additional liquidity to keep Greece’s financial wheels greased. It is the third time that the ECB has upped the Bank of Greece’s ELA over the past six-days. This had been necessary as today’s Greek banking sector pre-order withdrawals of cash was said to be over +€1.0b. Last week over +€4.2b was drained from deposit accounts.

EUR is neutral territory

The single unit has now returned to trading in neutral territory, the mid-point from last Friday’s and the overnight range (€1.1340-50), and this after having filled in the gap from the Asian session (€1.1404 high overnight).

For the majority of traders and speculators, the risk/reward still favors buying EUR’s on dips. However, no matter what the spin-doctors are saying ahead of today’s summit, the Greek Prime Minister is still looking for an agreement without VAT hikes. The unpredictability will lead to more anxious moments for investors and traders who have been forced to watch headlines. Any mention of Grexit will have traders nervously scuttling for the exits.

On the flip side, Greek investors certainly seem optimistic over the ongoing negotiations between their Prime Minister Tsipras and the country’s creditors. In the bond market, Greek/German spreads have tightened significantly this morning. Greek 10-year debt (+11.30%) is about -145bps tighter to the German 10-year Bund (+0.81%) as the market heads stateside. However, perhaps more significant is that two-year Greek paper (+25.23%) is a stunning -370bps tighter to the German Schatz (-0.184%: two-year debt issued by the German Federal Government). Obviously poor liquidity is contributing to some of the price action along with the uncertainty over what the Greek proposals actually are.

Supposedly, the reforms are to gradually raise retirement age to 67. Greek officials have offered to have +23% as main VAT, +13% for energy and basic food and +6% for medicine/ books.

Do not be surprised that Euro officials will not be able to formulate a common stance as early as this evening. If there is progress today, the market should be interpreting this as a deal to be confirmed over the next few days. Any progress in talks will have Greece pushing away from a potential default scenario.