A Letter makes a EUR difference

You can just feel it, the EUR bulls are beginning to turn the screws. An impressive 24-hours has been “put in” by the single currency, retreat never an option, advance very much on the cards. Now that the IMF is officially using the T-word, proposing to increase its resources for lending by ‘ONE TRILLION’ dollars is again giving the EUR some fuel this morning. Many have not been capable of getting their minds around a billion, now we have a trillion-what does that really look like?

The most crowded short trade on the books is in danger of squeezing many more weaker positions out on the top side, as investors begin to question if it makes sense to remain short at these levels. It seems that the EURs new tendency to “decouple from positive economic news is fading.” Perhaps these shorts have been underestimating the success that the three-year LTRO is having in depressing short term yields of sovereign governments. Tomorrow, France brings to market much longer dated securities and should give the investor a better indicator of whats to be expected in the fixed-income fold.

The EUR is on course to complete its second consecutive trading session strengthening outright and against the yen, as optimism that Greece is nearing a deal to write down some of its debt is again boosting demand for the region’s assets. Its been reported that Greece is close to agreeing to pay +32c per EUR of government debt. It may be a tad early to rejoice, but optimism that a deal is imminent and stronger US data is beginning to turn, ever so slightly, recent market negativity. However, the big picture has not changed, the EUR region is in a recession, with the debt laden weaker peripheries “that” weak and in danger of dragging the Euro-zone down a path of complete destruction.

The imminent danger seems to be the fly-by night, irresponsible actions of the credit rating agencies. The single currency failed to pare some of its gains amid reports that Fitch may cut Italy’s credit rating by two-levels by the end of January, adding to concern the region’s debt crisis has yet to be contained. Rating’s watch and rhetoric is power for the course. Thus far, European sovereign have been capable of issuing short term debt, the same can be said for the downgraded EFSF program. It’s the longer term issues that need to be auctioned to truly gauge market appetite. Tomorrow, France will be the first to oblige!

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EUR did what was expected

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