The Euro has continued to soar higher following the technical break above psychological resistance at 1.3000. But, it’s not just the technical break that is powering the single currency higher. With Greece adhering to newly proposed measures regarding a Greek bond buyback, it seems that Euro bullishness is going to continue for the short term.
According to announcements by the Public Debt Management Agency in Athens, the Greek government is set to put aside $13 billion in order to buy back bonds issued earlier this year in order to cut borrowing costs for the befallen European Union member. The measure, which is in a Dutch auction and runs until the end of this week, is expected to compensate existing debt holders with a severe haircut – averaging about 33 cents on the euro. The reduction in value and the ability to successfully conduct this type of operation would be good for a country that is looking to reduce its national debt load to 120% of GDP in the next 8 years – in comparison to currently running totals of close to 171%.
All in all, the measure should free up a good chunk of Greek debt, increase sovereign cash flow and allow for borrowing costs to come down. Benchmark 10-year bonds are reflective of this fact, with yields dipping below 15% for the first time this year. Yields have now fallen to 14.89% down almost 8% on the session.
Incidentally and unsurprisingly, the recently implemented measure is adding to speculation that a write off may be accepted on Greek debt. The sentiment has been confirmed by statements made by German Chancellor Angela Merkel in an interview with Bild am Sonntag. When asked about debt forgiveness for the periphery nation, Chancellor Merkel noted that “we’ll have to look at this situation and make an evaluation”.
The comments are in stark contrast to earlier sentiment by Chancellor Merkel and other top German officials refusing to even acknowledge a debt write off as an option when dealing with a Greek bailout - possibly indicating more flexibility in future measures for the Greek country.
Ultimately, with bailout restructuring and European Union optimism higher, the short term picture remains bullish for the EURUSD pair. The technical picture remains just as rosy, with the price action breaking through resistance at 1.3025. A close above the figure would prompt an extension towards subsequent and major resistance at 1.3140.
Source: FXTrek Intellicharts