Euro Awaits Greece Resolution IFO

Euro stabilises, while awaiting two key factors before potentially regaining the 1.2800 ceiling: 1) a clear resolution in Greece’s short-term funding and; 2) a much-needed improvement in Friday’s release of Germany’s November IFO sentiment survey after seven consecutive monthly declines.

Thursday’s release of the Eurozone November services PMIs (Eurozone, Germany & France) will also be crucial in determining sentiment, following modest gains in October’s figures.

Tuesday’s Eurogroup meeting and assessment of Greece’s reform progress will influence Germany’s decision on whether to pay Athens the €31.3bn installment due from last June, the €5bn from Q3 and the additional €8.3bn due in Q4.

German Finance ministry reiterates its opposition to suggestions from the German camp of the ECB (Weidmann) that a haircut on Greek public debt may be necessary. But how unsustainable Merkel’s position become before her parliament when her government insists there will be neither haircuts nor any further losses for taxpayers?

Japan’s currency extends damage due to political shake-up up while the US currency drifts lower on hopes of averting the fiscal cliff. Both USD and JPY remain the reflexive losers on any signs of Eurogroup resolution and pre-holiday deal from US Congress.

Risk-appetite trades continue to linger at the expense of the USD and JPY following optimistic comments from president Obama in averting the fiscal cliff, combined with chatter that Greece will be given the next tranche ahead of Tuesday’s Eurogroup meeting.

EUR/USD starts the week on a firm note, attempting to post two winning weeks in a row after three straight weekly losses. While the foundation remains comfortably underpinned above 1.2650 (100-day moving average), upside remains constrained at the key resistance of 1.2808 (200-day moving average), which previously acted as a key support throughout September and October. Thus, on the positive, EUR/USD continues to hold above the $1.26 support we deemed essential to shake-off additional bearishness, yet 1.2800-1.2810 may not be broken without: 1) a clear resolution to Greece’s short-term funding and; 2) an improvement in Friday’s release of Germany’s November IFO survey after seven consecutive monthly declines. Despite our anticipation for an eventual return to 1.3330′s later this quarter, we expect lingering downside to be retested near $1.2600′s.