EU Bailout--Don't Believe It

As US players return to their posts, the have taken the euro higher amid speculation that the EU is about to announce some sort of deal for Greece. No fat wedding, but fat chance. Leave aside for the moment that Portugal's finance minister has already denied the speculation and Greece has been adament that it is not seeking external assistance. The fact of the matter is that a bailout before Greece implements its austerity program is nonsensiscal. It is putting the before the horse. Just last week a monitoring system was established and to give funds now would be to undermine that effort. Moreover, giving assistance to Greece at this juncture would risk deflecting the angst away from Greece (perhaps) and toward Portugal and Spain.

The short-term speculative market, as we noted yesterday in reviewing the IMM data, showed a record short euro position. The market has been caught leaning the wrong way after the downside momentum slowed yesterday.

The $1.3800 area poses the initial resistance and the 61.8% retracement of the down move since Feb 3rd (~$1.4025) comes in near $1.3860.

The risk is the market is setting itself up for disappointment if it is buying the euro on ideas of an EU rescue.