Today is Sat, November 18, 2017 7:13:07 GMT
RSS Follow Us Follow us on Twitter Friend us on Facebook
Contributors The Greek “Credit Event” and What it Means for the Euro

Andrei Knight, Senior Portfolio Manager,

There’s talk this morning of a Greek “credit event”, according to the ISDA.  So what does that mean?

Well, first the good news – most likely Greece will get the 130 Billion Euros it needs.  The IMF board is also voting on March 15th regarding a 4-year loan program for Greece for an additional 28 Billion Euros.

The problem is that by invoking a CAC (collective action clause), Greece is essentially forcing creditors to take a cut on the amount owed to them, in some instances by as much as 70%.  This causes the triggering of credit default swaps, and the ISDA has scheduled an auction for March 19th to cover the nearly 3.2 Billion Euros in payouts outstanding so far.

Essentially, by declaring a “credit event” (the market and media friendly way of saying “default”), the ISDA is protecting the CDS market from further claims from creditors effected by the CAC.

What does all this mean for the Euro?

It depends on whether the markets put more emphasis on Greece receiving the bailout it needs, or on the fact that it had to default on the majority of its obligations in order to qualify for it.

As of now, we’re watching a key price level at 1.3117 on the EUR/USD – this is the critical “neck” line of a Head and Shoulders pattern on the Daily chart.  If we close below this level today, very likely a prolonged down move will follow, taking us to 1.2855; if, on the other hand, 1.3117 can hold as support, we can expect this pair to continue chopping in the 1.3095 – 1.3290 range in the days ahead.

Across the Atlantic, the Fed will be releasing the latest Budget Balance figures for the US at 18:00 GMT, widely expected to widen from -27.4 Billion Dollars to -229.2 Billion.   Here again, much will depend upon the market’s perception – a widening deficit can potentially be viewed as negative for the long-term economic outlook, but at the same time as creating greater demand for the currency.  Once again, whether we close above or below 1.3117 when all the dust settles will be key.

This electronic mail message is intended only for the person or entity named in the addressee field. This message contains information that is privileged and confidential. If you are not the addressee thereof or the person responsible for its delivery, please notify us immediately and permanently delete all copies of this message. Any dissemination or copying of this message is strictly prohibited. All e-mail may be reviewed by authorized personnel, and may be provided to regulatory authorities or others with a legal right to access such information.
Knight Media Group and its affiliates assume no responsibility for errors, inaccuracies or omissions in these materials.  No liability is assumed for any direct, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials.  This e-mail is not an offer or solicitation to buy or sell any currency or futures contract, nor are Knight Media Group or to be considered financial advisors.  Knight North America is licensed and regulated in the United States by the National Futures Association (NFA # 0419564).
Trading in the foreign exchange (FX) market on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your monetary objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your deposited funds and therefore you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent advisor if you have any doubts. Most importantly, do not invest money you cannot afford to lose. Past returns are not indicative of future results.


Recent posts by forexnews