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FX Commentary EUR/USD, GBP/USD March 5, 2012

This week is going to be rather busy for the EUR/USD considering the widely known deadline for the Greek PSI deal getting finished by March 8th in order to get all the paperwork in line and Greece get its chunk of cash to pay out the bonds that mature on March 20th. So far the ISDA has ruled against a Greek default from the subordination issue case when the ECB swapped their Greek bonds without a haircut. However what was interesting is that when Moodys downgraded Greece to selective default the ECB did say they would not accept Greek bonds as collateral. They also said it was temporary but considering the credit rating agencies already reporting that if any sort of collective action clauses are enforced they will downgrade to full default leads me to believe that collateral issue wont go away any time soon. Unless by some miracle they do convince the hold outs to participate.

There was some reports out over the weekend on the Goldman/JPM crony who is now in charge of getting the PSI deal done. Here are a few important points from Zero Hedge

 Petros Christodoulou, who is now actively threatening any Greek hold out hedge funds against doing what is in their LPs’ best interests (suing Greece and the EU and holding out for par recoveries) by advising hedge funds (which are actively forming ad hoc hold out committees as we speak)  that “there is just no money for holdouts…We are prepared for legal challenges but the risk here is that people are trying to be too smart.”  We wonder if Mr. Christodoulou learned such brute force negotiating tactics at one of his former employers: JP Morgan or Goldman.  And as a reminder, it was also Goldman who allowed Greece to reach to its catastrophic debt load in the first place by coming up with clever ways to disguise its debt. Yup: if there is anyone who can play not both, but all three side of the game (including be the referee) it’s Goldman.

And the NYT

Mr. Christodoulou declined to comment on whether the clause would be activated but he did underline that the consequences of a failed deal are dire not just for Greece but for bondholders too.

 The alternative, he said, “is too dire to contemplate.” He added that if this deal failed, the next offer bond holders would get would be far inferior, lacking the incentives that the current offer has.

 Mr. Christodoulou said that it was too early to get a sense of what the participation rate would be but that he said he was confident that at the end of the day enough investors would agree to the deal to reach the target.

 “We are targeting near universal participation,” he said. “We have spent a lot of time on this — now we are ready to implement it”

It seems interesting to me that a former Goldman/JPM employee would be put in charge of such things but this is the world we live in. Go figure.

It seems that the ISDA has also moved up the date of their decision on the PSI deal to March 12th and has indicated that only the activation of the CACs will be determined a default. The threat of using them to coerce the hold outs to participate dose not. Of which does make sense to me. Thursday is going to be wild guys so you may want to mark that on your calendar.

If the debt swap goes off without a hitch then all will be good but considering how the Hedge Fund hold outs have been doing their best to buy up enough stake in Greek bonds to collectively create enough percentage to stop the deal I have my doubts. However I wouldn’t be willing to stick my neck out and make a prediction. Stranger things have happened during this mess we call the EU debt crisis.

In todays news for the Euro we have Final services PMI, Investor Confidence and Retail Sales. With the Sentex Investor Confidence and Retail Sales being expected to improve from last month. If they are as expected we may see an up tick in the Euro but will more than likely be short lived as the market waits for Thursday.

The news for the Pound today is only Services PMI and is expected to get a small down tick from last month but is still well above 50 considered to be expansion so unless its a large surprise I dont expect much movement out of the GBP/USD on this release. This pair will most likely be dominated by risk and the USD the majority of the week.

Looking at the daily chart of the EUR/USD I see we have had the nice 300 pip run down and considering the Smart Money will drive the market in 3 pushes we have only seen 2 so far. However they have done a 300 pip push over 3 days so a retracement of sorts is possible before the third push down. I have marked a daily close resistance level at 1.3231 that may hold but considering the potential for optimism on the Greek PSI deal it may not stop there depending on what tape bombs get dropped today. Be careful today guys.

The GBP/USD has made an intraday 3 level push to level 1 longer term so should also have 2 more levels to the downside. However Fridays candle was a 150 pip move and its coming up on the daily 200EMA which its been fighting for some time so a retracement is possible here also. I will only be looking for a clear trap move to take these 2 pairs short today.

Happy trading guys



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