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The EUR got a strong boost today from German Chancellor Angela Merkel, who continued to express support for the Euro currency and said that the problem is one of debt.
From Bloomberg: "We don't have a euro problem in Europe," Merkel said in a speech in Singapore today on the final day of a three-day Asia trip that also took her to India. "We have more of a debt problem. Financial markets doubt whether some EU states can manage their debt in the long-term." Germany is committed to the euro, which is stable, she said.
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The news helped to ease some of the sting from Moody's downgrading Greece's credit rating yet again to Caa1 from B1, which implies a 50% risk of default for the country. While that news caused a sell off in the Euro we bounced back almost as quickly in today's session, as there seems to be some consensus building around a "voluntary roll-over" program, which would skirt any technical default from a rescheduling or reprofiling of debt.
That would be most agreeable to the ECB, but it also simply shifts the burden of paying back debt to future generations. Still, with more time it gives Greek leaders the chance to further scale back their budget deficits and push through other reforms that can help the state to collect more revenue while cutting spending.
Merkel's strong defense of the Euro means that the Euro-zone and EU countries will do what's necessarily to prevent the first sovereign default in the Euro-zone. The EUR gained despite some sharp declines in Asian and European equities as they got their first chance to react to the Greek downgrade news. Many big European banks are holders of Greek debt and were sold, though some of the heavier losses were pared.
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For a technical analysis look at the EUR/USD pair see today's Technical Update: EUR/USD To Achieve 61.8% Retracement and 161.8% Extension at 1.46
Nick Nasad
Chief Market Analyst
FXTimes
