The EURO, which has been batted against other major cross currencies, has been given a reprieve after the European Union announced it was going to bail out the Greek economy for the second time. The second bailout is again expected to top 100 Billion EUROs. Even with the bailout, the EURO failed to rally against any of the major cross currencies late in trading on Friday. It will be interesting to see what market participants make of the announcement during trading this week.
The announcement by the EU clearly shows their willingness to support Greece and in turn the EURO. However, the bailout still needs to be accepted by Greek parliamentarians must commit to a series of reforms including €28 billion of budget cuts over the next five years, and up to €50 billion in privatised state holdings being sold off to repay the debt.
Whilst the majority of Europe will need to dig into their pockets to support the bailout, Great Britain firmly announced that they would not be participating directly in any bailout. However, it’s almost certain that GB banks will indirectly be affected by Greece’s worsening financial condition.
Worst affected has been the EUR/CHF as the CHF is seen as a safe currency during a crisis. This is shown by the chart below which shows the EUR/CHF declining at a rapid rate over the past few months. The EUR/GBP also looks bearish with a possible double top building.
The USD/EUR by contrast appears to be reasonably neutral despite the issues the EUR has been having. This might be a legacy of the issues the USD has been having as well with no clear trend emerging between that pair.
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