Agreement at last!

Greek politicians finally agreed on further austerity cuts totalling EUR 3.3 billion in order to secure a second bailout package. European official discussions now centre on the details of the bail out package, targeting a cut in Greece’s debt to GDP ratio to 120%.

However, the fact European Finance Ministers have withheld more funds for Greece until the austerity measures begin to be implemented suggests further uncertainty on the horizon. A Greek parliamentary vote set to begin this weekend may see some progress but markets will trade cautiously ahead of the vote.

EUR/USD rallied to a high of around 1.3322 but failed to break above its 100 day moving average at 1.3332 following the agreement. As expected the ECB offered no help to the EUR, with market attention continuing to centre on the second 3-year LTRO on 29 February.

The fact that there are still various issues to be resolved means that upside for EUR will be limited in the short term. In any case the currency was already pricing in a lot of good news. EUR/USD will face major resistance around 1.3388.

Notably risk measures are edging higher once again, implying some pressure on risk assets in the near term. Markets today will digest the status Quo from the European Central Bank and an additional but expected injection of GBP 50 billion in quantitative easing from the Bank of England. December US trade data and February Michigan confidence are the only data of note suggesting limited price action ahead of the Greek parliamentary vote.

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