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Markets rally on ECB debt swap deal for Greece

Markets rally on ECB debt swap deal for Greece
February 17th, 2012
Author: Mike Paterson

Mike Paterson’s daily Forex brief

It was only this time yesterday that the market had given up hope of an imminent bailout deal for Greece and now we’re anticipating a deal on Monday for at least a major part of it. If a week’s a long time in politics, then 24 hours is an age in FX!

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The ECB announced a debt swap deal whereby it and the national central banks in the Eurozone will exchange their holdings of Greek bonds into new bonds at the same terms as before. This is due to take place on Wednesday in the run up to a private sector debt deal to avoid taking any forced losses, and thus avoiding a Greek default in March, in theory at least. But they have also ruled out any bridging loan until after the elections in April. The Eurogroup must sanction it on Monday.

The ECB owns about €50 billion worth of Greek bonds following the emergency support programme which began in May last year, for which it paid a discount price of €40 billion. It appears that the profit is set aside to give back to Greece.

Is all this a case of smoke and mirrors? More informed opinion than mine was also declaring a Greek default inevitable this time yesterday but now it appears peace and love prevail and the deal is back on. I still reserve the right to be sceptical though until more of the die is cast next week. There are still some technical issues of legality surrounding the ECB debt swap initiative and it’ s worth noting that the head of the Bundesbank voted against it, fearing the swap could worsen investor mistrust and concerned about possible lawsuits.

This story isn’t over by a long way but yesterday’s ECB move was enough to send the traders with short Euro positions running for cover and from testing lows of 1.2974 we saw a rapid rise in EURUSD through 1.3100 to a high last night of 1.3159 and 1.3170 this morning thus far. EURJPY has also been a one way ticket higher as the “risk-on” sentiment has seen a continued selling of the Yen.

Forex Update

Forex Update

EURGBP hasn’t done too much though after failing to break any lower yesterday and the rally has so far capped at 0.8318 (GBPEUR 1.2022), as GBPUSD found good demand and has so far this morning hit highs of 1.5863, a 200 pip rise on yesterday’s low. Elsewhere though the Pound is little changed.

The S&P has risen to 9 month highs anchoring other equity markets in the process but the FTSE 100 still can’t get above resistance at 5930.

UK Retail Sales out just now have shown unexpected strength coming in at + 0.9% month on month and + 2% year on year which gave a little kick to GBPUSD but it’s all settled back a little lower again.

It’s going to take something substantial to tempt traders to do much today apart from lick their wounds but it’s Friday and anything can happen.

Frankly, the week-end and hopefully another 3 points for the Shrimpers can’t come soon enough!

Have fun. See you Monday.

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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