Greek Bond Buyback, Fed Expectations To Support Euro

Still on a upside course against the safety bet US dollar, the euro is deemed to continue to plot bullish candlesticks in today’s currency exchanges. Even as investors await the results of Greece's bond buyback and watch the political situation in Italy unfold, market participants are pricing in expectations for the US Federal Reserve to expand its bong-buying program in the middle of the week.

The European market was partially affected by Italian Prime Minister Mario Monti’s announcement that he would resign before his term ends, though has mostly closed higher yesterday. Mr. Monti has already appealed for calm and has assured investors that an imminent demise of his government would not lead to a political vacuum.

“I understand the market reaction, it need not be dramatized,” Monti said. “I’m very confident that Italian elections, when they come, will give room to a coalition or government that will be in my view a highly responsible, EU- oriented government, which will be in line with the huge efforts already pursued by Italy.”

Today, market focus turns to Athens as the Greek Finance Ministry extended the deadline for a buyback of sovereign bonds crucial to unlocking aid from the International Monetary Fund and the European Union. “We’ve taken note of Greece’s decision,” Simon O’Connor, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters. “We are confident that there is still scope for additional tenders by domestic and international investors.” If the Eurogroup of finance ministers deem the buyback successful, the country's next aid package could be approved by Thursday.

Meanwhile, investors are expectant that the Fed will announce that they are going to start buying Treasuries outright once Operation Twist ends. Dealers that trade securities with the US central bank expect it to begin buying as much as $45 Billion a month in Treasurys and to keep benchmark interest rates about zero into 2015, according to Bloomberg News surveys. This will be the last meeting of the US Federal Open Market Committee for the year.

Considering the fundamental expectations for the EUR/USD, a buy bias is suggested today. Nevertheless, be cautious of likely technical price corrections that could come up.