Doubts remain about Greece debt deal

As time has elapsed and markets have had time to digest the latest Greek debt deal, the lack of enthusiasm among market participants remains palpable.

This is probably down to the fact that details about the debt buyback remain sketchy at best and the IMF has stated its participation remains dependant on the buyback succeeding, not a given considering the premium being offered.

The move to cut Greek interest payments also elicited a very strange reaction on peripheral bond markets, as we saw Greek yields fall, along with Italian and Spanish yields.

The surprise was seeing Spanish and Italian yields fall given that such a move has the effect of costing the Spanish and Italian governments money, given that they have to raise money at higher rates and lend it to Greece. Not exactly a move guaranteed to help the already precarious fiscal positions of both countries.

The new deal needs to be voted on in the national parliaments of Germany later this week, as well as Holland and Finland, and then approved in time for the money to be released on the 13th December, just before the next EU summit.

There also remains the small matter of the lack of growth, something the OECD decided to highlight yesterday when it downgraded growth forecasts across the world, with a particular focus on the risks in Europe, downgrading 2013 growth in Europe from 0.9% to -0.1%.

For all the focus on Greece this is one area that Europe appears to have forgotten about.

Across the other side of the Atlantic the US economy appears to be idling along nicely, albeit at a very slow rate, even though concern about the fiscal cliff is making investors nervous, a fact that saw US stocks dip late on after US majority Senate Leader Harry Reid admitted there has been “little progress” in talks thus far.

Consumer confidence is at a four year high and house prices appear to be making a comeback. Today’s Fed Beige book could reinforce this optimism, but it is unlikely to, especially on the East Coast where it would not be unexpected to see some hit to activity from Hurricane Sandy.
Previous Beige books have pointed to moderate economic activity with some concern about manufacturing.

This seems likely to continue Sandy notwithstanding.

EURUSD – yesterday’s failure at 1.3005 trend line resistance from the 2011 1.4940 highs saw the euro slip back to the 1.2920 area near the 50 day MA. A break above 1.3020 has the potential to retarget the September highs at 1.3175.
A break back below the 50 day MA and 1.2900 retargets a move towards the 200 day MA at 1.2800, while below that we also have trend line support from the 1.2050 lows which now comes in at 1.2745.

GBPUSD – the cable once again failed to overcome the 50 day MA for the third day in a row at 1.6065, also falling short of 1.6100 channel line resistance from the 1.6310 highs. Only above 1.6100 has the potential to target 1.6200 and the October highs. If we drop below 1.6000 we could see a drop to the 1.5970 area. To push conclusively lower we would need to see a move towards and break below 1.5815 trend line support from the 1.5270 lows, as well as 1.5660.

EURGBP – yesterday’s bearish daily candle opens up the risk that we’ve seen the highs here and we could now slip back towards 0.8020. We need a move above 0.8115 to suggest a move towards the October highs at 0.8165 remains possible.
On the downside trend line support comes in at 0.7990 from the July lows at 0.7755.

USDJPY – having held above support at 81.80 we remain on track for a retest of last week’s highs at 82.85, on the way to a broader move towards the March highs above 84.00.
A break below the interim support at 81.80 has the potential to target a move towards the 80.50 and weekly cloud level support.
Only below the 80.50 level suggests a move back towards the November lows at 79.00.