Being Long Euros is Lonely

Owning the single currency is not making anyone wealthy at the moment, not even after China lent her mighty support to the beleaguered currency by teasing us with potential investment support yesterday. Chinese policy makers are waiting for the appropriate time to invest in EUR’s as a reserve currency and that time is when European officials can produce innovative instruments with better return profiles. The ongoing nervousness about Greece has the EUR extending its losses again during the European session.

The currency has slipped below the psychologically significant +EUR1.30 handle outright, as confusion about Greece’s bailout package details are shaking the already fragile investors raw nerves. Rating agencies cannot be omitted from the ongoing saga equation. Moody’s putting 114 Euro financial institutions on notice for potential downgrade is adding to the anti-EUR tone. Greek offering of further cuts and savings in its budget and letters of commitment from two of the three main parties is not reassuring anyone. In fact, the Hellenic plea for more aid has stirred recrimination on both sides of the euro economic divide.

Despite stronger than expected French and Spanish bond auctions this morning, periphery yields continue to tick higher. Further delays to solving this Greek debt fiasco will continue to weigh on risk sentiment. With trust deteriorating in Greek politics day over day by some EU members, and rumors about delaying a financial package until after the Greek elections in April (bridging financing would be required), has the fixed income market concerned about how Greece’s +EUR14b bond redemption will be handled on Mar 20. Each day lost in disagreement brings Greece closer to being the first country in Euro’s history to default.

Yesterday’s teleconference meeting only produced ‘soundbites’, allowing another day to be wasted and another day closer to default. The next Euro finance meeting is Monday. It’s here that the market again will hope for more clarity on a potential Greek third tranche timetable. Failure to do so will again provide license to sell the single currency as Greece enters election season without funding.

With 1.30 breached, analysts seem to have their heart set on a 1.26 print outright, unless of course there is a break in negotiations. This breach is not yet solidified, however, a move to the downside is the ‘clear risk.’ The market is modestly short EUR’s and continues to look for solid excuses to sell even more. Even with sellers on upticks, weaker shorts will provide the squeeze and option barrier below the target points. A break below 1.2950 is expected to ‘unlock the next wave of significant bearishness.’ It’s no wonder its lonely being long!

Other Links:
Another EUR Hail Mary Pass

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