EUR/USD: Greek Credit Rating Upgrade, German Ifo to Buoy the Euro

The Euro is believed to gain alongside the US dollar today after Standard & Poor’s raised Greece’s credit rating following its successful bond buyback program. Likewise, economic figures due out today are seen to suggest an improving outlook for the Euro Zone economy in the coming months. Over to the US, perceived progress in negotiations to avert the fiscal cliff is presumed to boost risk sentiment.

The S&P upgraded Greece’s credit rating by six notches yesterday, lifting the country out of default status. The agency upgraded Greek government debt to B-, the highest grade it has given the nation since June 2011, reflecting its view that the other 16 Euro Zone countries are determined to keep Greece in the bloc. It also gave Greece a stable outlook, suggesting it is less likely to change its rating again soon in response to the government’s commitment to a fiscal and structural adjustment against economic and political challenges. The S&P previously lowered Greece’s credit rating from CCC to “selective default” after Athens invited bondholders to participate in a series of buyback auctions on December 3. The bond buyback was successfully completed last week, which essentially reduces the country’s debt by about $26 Billion. According to analysts, the size of the upgrade indicates European leaders are seeing substantive results in bringing Greece’s debt load under control.

Today, two economic reports from the Euro Zone are believed to incite optimism over economic prospects in the region. The Ifo Institute for Economic Research is deemed to report that the economic outlook for Germany improved to a four-month high this month. The German Ifo Business Climate is estimated to rise from 101.4 points to 101.9 points in December, potentially its best reading since August. Recent strides in the efforts to combat the debt crisis, including the approval of bailout loans to Greece and the banking supervision deal, and the stabilization in the bond markets are seen to have improved sentiment in the region. Meanwhile, demand for Euro Zone-made goods likely rose in October as the Current Account surplus of the region widened from 0.8 Billion to 5.8 Billion during the month.

Over to the hot topic of the US fiscal cliff, perceived progress in the talks to avoid painful spending cuts and tax hikes is believed to keep market moods buoyant today. House speaker John Boehner has agreed to the idea of raising tax rates on the wealthiest Americans while US President Barack Obama said he could accept tax increases for households earning $400,000 or more per year, proposals that hint of compromise. Considering these, a long position is recommended for the EUR/USD trades today.

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