EUR/USD: Euro Falls on Persistent Greek Concerns

The Euro is foreseen to sustain losses opposite the US dollar in today’s exchanges as Euro Zone finance ministers and the International Monetary Fund failed to concur on a long-term framework to reduce Greece’s debt, preventing the disbursement of a needed financial aid tranche. Likely adding pressure to the Euro is the deteriorating economic backdrop in the region, which is seen to be highlighted by today’s release of the German ZEW Economic Sentiment. Meanwhile, worries of the looming fiscal cliff in the US is also believed to drive demand for the single currency lower today.

Euro Zone finance ministers gathered in Brussels failed to disburse more aid to Greece, but instead, granted the country two more years to make the cuts demanded of it. By granting Greece more time, international lenders face an extra funding bill of around 33 Billion Euros, a document prepared for the meeting estimates. Chairman of the Euro Zone finance ministers Jean-Claude Juncker said that another Eurogroup meeting would take place on November 20 while officials expressed that more negotiations could be required the week after that to finalize a new deal. With the aid funds still blocked, Greece is expected to roll over T-bills on Tuesday to avoid a default. Economists say that until the blocked funds are released, markets will remain nervous about Greece’s debt situation.

Despite Greece approving harsh austerity measures and a tough 2013 budget last week in hopes it would meet conditions for the release of a tranche of 31.5 Billion Euros of emergency loans under its second bailout program, its lenders still need to agree on how to make its debts sustainable into the next decade. International Monetary Fund chief Christine Lagarde said more work is needed to solidify the budget measures, necessitating a review if all requirements were met. The IMF has previously said that Greece’s debts must be reduced to 120 percent of GDP by 2020, from around 190 percent next year. Analysts believe that international lenders will not release more aid until a debt sustainability analysis from the troika has clearly spelled out how to reach such goal – a matter likely high on the agenda on November 20.

On the economic front, investor outlook for the region continues to be rather bleak as the German ZEW Economic Sentiment is projected to remain in the negative in November. The index, which gauges a six-month outlook for the German economy, is seen to come in at -9.9 points this month, slightly higher than the -11.5 points in October, to mark a sixth consecutive month of pessimism. With economic prospects remaining bleak in the currency bloc, demand for the Euro is seen to wane, warranting a short position for the EUR/USD today.

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