Daily Forex Outlook: Euro (EUR) Predictably Jumps on Greek Deal

on Nov 27, 2012

On November 27, the euro unsurprisingly advanced with Eurozone finance ministers finally agreeing on a package of measures intended to reduce Greece’s debt burden. Although the Greece deal had an immediate impact both on the euro and higher-yielding currencies such as the Australian dollar, analysts are already seeing the euro as losing momentum. In Japan, the leader of the opposition Liberal Democratic Party (LDP) and Japan’s potential next prime minister, called for bolder monetary easing, sending the yen down versus the euro and the greenback.

**Agreement on Greece Boosts the Single Currency**
Bloomberg reported on November 27 that the euro touched a three-week high, following the news that the Eurozone ministers had finally agreed on releasing the next loan to debt-ridden Greece. The single currency posted gains versus the majority of its 16 counterparts, and climbed to $1.3009, the strongest since October 31. “The agreement on Greece has been well received by markets,” notes Daisuke Karakama, a market economist Mizuho Corporate Bank Ltd, as quoted by Bloomberg. “The momentum in the euro’s rebound on back of positive news out of Europe seems subdued, which suggests that the market is still quite cautious.”

Reuters in turn quotes Commonwealth Bank of Australia (ASX:CBA) strategist Joseph Capurso as saying that the market reaction was not huge since the agreement was already priced in. “Economic data in Europe is getting worse and you also have the unresolved US fiscal cliff in the background,” Mr Capurso added, as quoted by Reuters.
With the Greek deal already reached, markets are turning to the looming fiscal cliff in the US, where Congress returned from its Thanksgiving break. Bloomberg reports that the Dollar Index, the gauge tracking the performance of the greenback versus the currencies of major trading partners, slid 0.2 percent to 80.126.

**Yen down on Shinzo Abe’s Aggressive Stimulus Rhetoric**
The dollar, however, advanced against the yen, gaining 0.2 percent to about ¥82.24, moving back to the seven and a half month high posted last week, Reuters reported on November 27. Japan’s currency retreated versus the euro as well, with the single currency rising 0.3 percent to ¥106.83. The yen’s downward movement was attributed to the comments made by LDP’s leader Shinzo Abe who warned that Japan could not restore fiscal health unless it beat deflation.

!m[Yen (JPY) Continues Slide As Japan’s Opposition Leader Calls For Bolder BOJ Stimulus](/uploads/story/903/thumbs/pic1_inline.png)“The government and the BOJ should achieve a policy accord and discuss an inflation target to pursue bold monetary easing,” stated Mr Abe, as quoted by Reuters. “Most central banks in the world, except for that of Japan, set policy targets with the government or in response to requests from the government,” he pointed out, adding that the BOJ should be held accountable not just for achieving price stability but also for boosting job growth.

**Aussie Touches a Two-Month High**
The Australian dollar also posted Greece-related gains, with Bloomberg reporting on November 27 that the Aussie advanced versus most of its 16 major peers, touching $1.0490 against the greenback, a level unseen since September 21. “The initial market reaction to the agreement is positive, but we await further details to see if it’s a sustainable solution,” notes Callum Henderson, head of currency research at Standard Chartered Plc (LON:STAN, LON:STAC, HKG:2888), as quoted by Bloomberg. “At the margin, this is good news for higher-yielding currencies” such as the Aussie and kiwi.” The kiwi, as the New Zealand dollar is sometimes referred to, snapped a decline gaining 0.2 percent versus the greenback to 82.34 US cents.

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