The Euro continues to experience choppy trade and headline news continues to push peripheral yields higher and create a flight to safety which is driving up the price of bunds, and pushing German yields lower. This in turn is reducing the interest rate differential between the US and Germany, and reducing the value of the Euro.
Today’s worse than expected US GDP data will likely help the Euro given that yields in the US will likely be lower. The 10-year yields is at the 3.1% level and could make a push toward 3%. US first quarter GDP was expected to remain stable at 2.2%, but moved down to 1,8% as an estimate.
There has been no shortage of comments about Greece this week, both official and unofficial, making for choppy, headline-driven trading conditions. Positive sentiment today is being helped by EFS head Klaus Regling, quoted by the FT saying that Beijing was “clearly interested” in the auctions for the Portuguese bailout bonds. The article also confirmed that China had participated in the January auction to raise funds for Ireland’s bailout. While positive at the margin, these purchases would do little to address the more important liquidity and solvency concerns of periphery debt.
That German Chancellor Merkel yesterday ruled out any sort of change in Greece’s debt structure before 2013 could signal a change in stance. Many Germans officials were recently and openly talking about restructuring. Now, perhaps Merkel is clamping down on this with the hopes that taking the Greece restructuring option off the table may reduce market stresses and improve Spain’s chances of dodging the bullet. In other words, back to kicking the can down the road. Recent frank talk about restructuring spooked markets. If the restructuring fears ebb near-term, the can is kicked again, and Spain avoids pressure, then this would be euro-positive.
The Euro is trading in a tight range, the FOMC and the ECB are in different places which should eventually take the Euro higher.
The Euro faces two levels of resistance near the 1.44 level and a close above 1.4430 would lead to a test of the 1.46 level.
The Trade, purchase a daily binary call option on a daily close above 1.4430.
Asset : EUR/USD
The trade : Binary Call Option
Expiry time : End of day
When : On a daily close above 1.4430 but not higher then 1.4480