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Greek s latest fix stabilises euro for now

Article By: ,  Financial Analyst
November 27, 2012 5:33 PM

A Greek deal is finally done… for now.  It was between reducing the debt to 120% of GDP by 2020, or 110% by 2022 but with more debt relief and haircut on Greek paper.

They agreed on 124% by 2020

The €34.4 billion in aid owed from June would likely be disbursed on 13 December pending approval by national parliaments .  The remaining € 9.3 bn of overdue aid will be paid out in 3 tranches during Q1 of next year provided tax system reform is met in January.

A bond buyback plan will have to be successfully completed alongside various measures aimed at helping to reduce the debt burden by 205 of GDP ie prevent debt/GDP ratio from reaching the projected 144% in 2020.

The measures include:

i)  100 bp-cut on the interest rate charged on Greek bilateral loans from Eurozone governments;

ii)   Transferring national central banks’ profits made from Greek debt to Athens. Only Portugal and Ireland are exempt from these concessions.

iii)  Extending maturity on Greek loans from European Financial Stability Facility bailout fund by 15 years and delaying interest payments by 10 years, while reducing the interest rate by 10 basis points.

iv)  Greece will have to transfer all privatization revenues, including 30% of any excess surplus, into a dedicated account to realistically cover debt service payments.

Debt forgiveness, maturity extensions and interest rate cuts are increasingly becoming an option in the latest debt negotiations for a country that is deemed to have done its part in starting and sticking to reforms. This has occurred to the extent that the ball remained in court of the IMF and EU. Yet it is one thing or Troika to agree on the Mathematics of the debt reduction, and another matter is to assess the probability of slashing the debt from 175% in 2016 to 124% in 2020. The IMF goes farther and is expecting 110% by 2022.

EUR/JPY tests its 100-WEEK MA for the first time in eight months following two prior failed attempts over the past four years. The weekly and monthly oscillators appear firmly aligned to suggest higher ground beyond 107 and onto 110. Support has cropped up to 104.30.

EUR/USD mounted a robust performance on the daily moving averages, but is starting to pull back down towards the 55-DMA of 1.2920s. Trendline support appears well cushioned at 1.2870s, which is a confluence foundation with the 55-WMA. Weeklies suggest a more solid momentum picture, which needs to remain above the 55-WMA of 1.2890. Monthlies continue to suggest 1.34 as a preliminary target in the first half of Q1 2013.

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