Mar 4 2010, 08:23 AM
QUOTE(rstusa @ Mar 4 2010, 08:13 AM)
The EUR/USD rallied to reach session highs as news of Greek austerity plan began to trickle out to the market. According to Dow Jones newswires, the Greek government will increase the VAT tax to 21% from 19%, freeze all pension payments and reduce civil service wages by 12% in an effort to control its growing budget deficit this year. Greek bonds responded positively to the news as GGB/BUND spreads narrowed to 293bps from 300bps prior to the news .
Greek Prime Minister George Papandreou will travel to Germany and France in the next several days to consult with Eurozone’s two most important members and obtain their seal of approval on the deal so that Greece could once again access bond markets on favorable terms.
At first glance, the Greek plan appears to have made serious progress in addressing the fiscal budget deficit problems that have wreaked havoc on its capital markets since the start of the year and is likely to assuage the ratings agencies who have threatened to down grade Greek government debt below investment grade.
The bulk of the cost savings falls squarely on the public sector in Greece and it is unclear as of yet just how much resistance the government will meet from the civil service unions. Nevertheless, the austerity measures are likely to increase the credibility of the Greek government and make it easier for Greek fiscal authorities to receive support from the Germans and the French.
Overall, tonight’s developments should prove positive for the EUR/USD which has been held down by growing market concerns over the burgeoning fiscal deficit problems in Southern Europe and fears that these economic pressures could exacerbate the risk of fragmentation in the region. The pair traded to 1.3650 in the wake of the announcement and could try to test the 1.3700 barrier as the day progresses if markets become convinced of the credibility of the plan.
Source: FX360.com
Seriously, I doubt Greek gov can solve the issue. What about Spain? They are in deep shit too, close 20% unemployment with huge debt. Greek Prime Minister George Papandreou will travel to Germany and France in the next several days to consult with Eurozone’s two most important members and obtain their seal of approval on the deal so that Greece could once again access bond markets on favorable terms.
At first glance, the Greek plan appears to have made serious progress in addressing the fiscal budget deficit problems that have wreaked havoc on its capital markets since the start of the year and is likely to assuage the ratings agencies who have threatened to down grade Greek government debt below investment grade.
The bulk of the cost savings falls squarely on the public sector in Greece and it is unclear as of yet just how much resistance the government will meet from the civil service unions. Nevertheless, the austerity measures are likely to increase the credibility of the Greek government and make it easier for Greek fiscal authorities to receive support from the Germans and the French.
Overall, tonight’s developments should prove positive for the EUR/USD which has been held down by growing market concerns over the burgeoning fiscal deficit problems in Southern Europe and fears that these economic pressures could exacerbate the risk of fragmentation in the region. The pair traded to 1.3650 in the wake of the announcement and could try to test the 1.3700 barrier as the day progresses if markets become convinced of the credibility of the plan.
Source: FX360.com
So, I think we're gonna see weak EUR.
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