EUR/USD: Euro Sustains Gains on Upbeat Data and Greek Buyback Success

The Euro is deemed to maintain its advance against the US dollar today as surprisingly buoyant economic data are deemed to incite optimism that the Euro Zone economy is recovering. Meanwhile, reported progress in Greece’s debt buyback program is believed to finally clear the way for disbursement of needed loans for the debt-laden country.

In a report that largely surprised the markets, the German ZEW Economic Sentiment index rose from -15.7 points to 6.9 points in December, exceeding forecasts of a modest improvement to -11.4 points. Analysts say that the report suggests investors believe that Germany would be able to avert a recession and begin its expansion in the coming months. For the whole Euro bloc, investor sentiment also posted a healthy improvement. The overall ZEW Economic Sentiment index jumped from -2.6 points to 7.6 points this month, likely a sign that recent progress in reining in Greek debt and the European Central Bank’s pledge for action managed to ease concerns. Extending the optimism for the Euro economy is today’s Industrial Production report for October. Industrial output is estimated to have recovered with a 0.3 percent increase during the month from a 2.5 percent plunge in September.

Meanwhile, after days of persuading, the Greek government’s private sector creditors agreed to sell Billions of Euros of bonds back to the government at sharply discounted prices, the crucial piece of a plan negotiated last month with the Euro Zone and the International Monetary Fund to bring Greece’s debt pile down. According to officials, the Greek government received offers from investors holding bonds with a face value of about 31.8 Billion Euros at an average price of around 33.8 cents on the Euro. The complex debt buyback, financed by a 10 Billion Euro loan from the country’s creditors, is a central element of a plan aiming to reduce Greece’s debt to 124 percent of GDP by 2020. In doing so, Greece will likely get the backing of the IMF, clearing the way for the disbursement of desperately needed loans to recapitalize its banks and keep the government functioning. Hence, perceived progress in restoring Greece’s fiscal health is seen to support the single currency today, warranting a long position for the EUR/USD.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.