A new day is dawning on the American continent, but of course the Europeans have already been hard at work for hours. The market’s biggest sticking point of late has been the ongoing Greek drama over renegotiating the country’s bailout, and the two sides have made significant progress on that front over the last 12 hours. At around midnight local time, Greece submitted its required list of reform measures for review by its creditors; in this list, Greece made significant concessions, including postponing Syriza’s campaign promise to raise minimum wages, consolidating pension funds, and vowing not to roll back recent industry privatizations.
According to one member of the European Commission reviewing document, the list “is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.” The next step is for Eurozone finance ministers to review the list later today, and assuming they approve it (a likely outcome, in our view), distribute the next tranche of bailout funds to Greece later this week. In other words, it appears that the near-term danger of Greece running out of funds is diminishing, though much more is needed to address the country’s long-term fiscal issues.
Greece’s equity traders will take what they can get for now, and the Athens Stock Exchange index has rallied by 8% as a result of today’s progress. However, the euro has failed to keep pace, with EURUSD essentially unchanged on the day in the lower-1.1300s. EURUSD’s failure to rally, despite the ostensibly bullish news out of Greece, is a clear bearish signal.
The pair remains within its recent 1.1260-1.1500, but it’s starting to look like the sellers may be gaining the upper hand. The pair has been putting in lower highs for the past three weeks, and while the 1.1260-1.1280 support zone has held thus far, an eventual break below that level could open the door for a drop to the 78.6% Fibonacci retracement near 1.1200 next. Traders should also keep a close eye on the 4hr RSI indicator, as a break below support at the 40 level in that indicator could foreshadow or confirm a breakdown in the exchange rate itself.