Greek Woes

Currency in Crisis
One of the key drags on the euro remains the Greek situation. Greek 2-year yields are up roughly 75 bp on the day (US 2-year yield is near 82 bp and Germany's 2 year yield is near 93 bp). A key driver today appears to be a Market News International story revealing that a draft of a joint report by the EC, ECB and IMF find that the Greek budget plan falls almost 5 bln euros shy of what is needed to reduce the deficit by 4 percentage points this year.

Of the 5 bln euros, 1 bln is due to higher debt servicing costs. The draft thinks that Greece is too optimistic in thinking that cracking down on tax evasion can raise 1.2 bln euros. The report also says that Greece may be exaggerating the funds it will get from the EU budget.

Separately, Greece has been working on another 3.5 bln euro savings, but seems reluctant to match the entire shortfall the report identifies. The report may be released tomorrow.

Euro bounces are shallow and short lived. Technical indicators show an over-extended market and momentum traders and model driven accounts are well short the euro, though medium and long term investors still appear to be lagging a bit behind.

This month we have highlighted the crossing of the 50 and 200 day moving averages. Sterling turned, then the euro, then the dollar index and today the Swiss franc. These medium term technicals and our understanding of the fundamentals means that even if there is a dollar pullback, there will be many who buy it.
Greek Woes Greek Woes Reviewed by Marc Chandler on February 25, 2010 Rating: 5
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