EUR/USD climbed as solid eurozone sovereign debt sales and signs of Greece moving closer to a vital debt-swap deal eased concerns and renewed confidence over Europe’s refinancing capability. Spain and France sold bonds at lower yields yesterday and today Greece and its private bondholders will resume debt-swap talks to overcome differences on interest payments. Currency strategist at Bank of New Zealand, Mike Jones said “Given that the European debt markets are the focus at the moment, positive signs emerging there have helped sooth any investor nerves. The market really focused in on the negative headlines rather than the arguably slightly firmer details of that employment number”.
Adding further to the positive mood last night were comments from European Central Bank. ECB said “Against a background of heightened uncertainty and continued stresses in financial markets, the latest survey indicators suggest that, while global growth has been moderating in recent months, some tentative signs of stabilization appear to be emerging. Inflationary dynamics remain contained in advanced economies. In emerging economies, inflation rates have lately experienced a modest decline, although underlying pressures persist” in its monthly report. After the report released, we saw short-covering rally in EUR/USD as macro funds reportedly were reducing their EUR shorts.
The recent price action shows that the market participants who have been extremely bearish are taking their profits and these transactions are pushing EUR/USD higher. Analysts at Barclays Capital said “Market uncertainty has declined substantially in the past few days, with various implied volatility measures across assets falling to levels last seen in late July/early August 2011. Better economic data, progress in the Greek negotiations and successful peripheral European bond auctions have bolstered market sentiment for the time being”. Currently EUR/USD is trying to pass 1.2970 resistance and if Greece reaches an agreement today, there is every chance the pair will reach 1.3050 levels. It is very important to bring the country’s debt down to a sustainable level in order to avoid a default. Investors’ focus will be on U.S. Existing Home Sales data on the last trading day of the week. Any bad news from the eurozone may trigger selling pressure and drag the euro lower.