Long/short rations is an excellent indicator for overall market sentiment. The bar chart below indicates that +58% (updated every 15-mins) of the market is/or has been bearish the EUR and there lies the danger after this early morning Greek deal announcement.
The potential risk of a Greek default is subsiding after EU Policy makers agreed a bailout for the country. Investors will be more than willing to ‘load up’ again on risky assets. However, the speculative market remains very short of the EUR and as recently as last week, Macro Hedge Funds were again accumulating EUR short positions for a break lower outright. Obviously, after this morning’s early agreement, this looks less likely now that the Greek deal has brought a couple of months’ worth of stability to the Euro-zone debt markets. Improved sentiment along with stronger than expected US data could see the pair challenge a new year high print.
Thus far, the market has “brought the rumor sold the fact”. EUR has rallied +0.8% in the O/N session on reports that the Euro-group has agreed on a new financing package for Greece, but has dropped from its high of 1.3293. Most of the other G10 currencies have managed to pair some of their original gains. The Market will now wait to see what North America wants to do.
The Euro-group have agreed to +EUR130b Greek rescue package. The key details include:
- The new package is expected to bring Greece’s debt to GDP ratio down to +120.5% in 2020.
- The haircut for PSI will be raised to +53.5% or more from +50%. The agreement would pave the way for the PSI offer to begin today or tomorrow
- Prospective profits and accrued interest on ECB ownership of Greek bonds will be used as an official contribution to reduction of Greek debt, albeit with this action taken by individual euro area governments after an ECB distribution of these.
- Greece is to pass a constitutional amendment giving debt service payments priority over other budgetary expenditure
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