Euro Gets Help from an Unlikely Source

With the pressure on the Euro relaxing to a fair extent after the Eurozone’s policymakers agreed to provide Greece with its next bailout payment, support is now being garnered from an unlikely source – Greece! The Euro has been on an uptrend against the U.S. Dollar, and yesterday was able to extend Monday’s gains on expectations that the Greek government’s plans to buy back sovereign debt would be a smoother operation than in times past. So far demand for the buy back seems positive, and experts say that a successful buy back will be the final step in unlocking the next aid tranche from the Troika, but moreover will put the country’s debt within sustainable levels. According to a representative from the Greek government, more than €10 billion will be used to buy back sovereign debt with prices that could top market expectations.

Economic data from Greece was also reason for the uplift of the Euro; though still in recession the data points to some improvement in the key export sector, with the growth rate now among the Eurozone’s highest. According to Christian Noyer, a member of the European Central Bank and the French central bank governor, Greece’s economy could rebound provided that its structural reforms are implemented. According to him, the Greek government has to prove to investors that they are sincere about those reforms even while reducing their debt and they can do that through effective administration and a reduction of red tape which could spur growth.

Borrowings costs for other financially troubled Eurozone nations also fell earlier in the week, and analysts are anticipating that the Euro could see additional gains before the week’s out from improved yields on looming Italian and Spanish debt auctions. Even Tuesday’s less than favorable news of unemployment in Spain rising to 5 million with a corresponding increase in the unemployment rate by 1.5%, and a disagreement among France’s and Germany’s officials on the way forward for a banking union didn’t curb enthusiasm too much.

At one point during the trading day on Tuesday, the EUR/USD pair struck a high of 1.3041, a rate not seen in more than a month, and has held in positive territory for much of the day. What markets will be focusing on now is the U.S. non-farms labor data for November which will be released on Friday.

One recently conducted survey shows that analysts and economists are predicting that the data will show 91,000 new jobs will have been added, which is a significant drop from October’s 171,000 new jobs. If the data is as disappointing as the predictions, there will be little doubt that the Federal Reserve’s commitment to enduringly low interest rates will be seen as justifiable. On the other hand, given that the all-important Christmas season is here, some analysts – granted not in the majority – believe that those estimates are too conservative by far, and that seasonal hiring will have resulted in a much higher number, say even to 180,000. In that case, there is likely to be a knee-jerk reaction to the news which could send the EUR/USD lower.

Today, however, ADP results for private sector hiring (which generally tends to presage the government’s official numbers), will be released with analysts forecasting a decline to 125,000 new hires in November from October’s 158,000. Higher actual numbers will likely result in a knee-jerk reaction, but will more importantly also prey on sentiment for Friday’s official NFP data.