Euro buoyed as Greek debt resolution in sight

Investors are seemingly immune whenever negative news appears showing their stronger will to drive risk forward than backwards. Hopes for a somewhat lasting resolution to the problem of how to cope with the Greek sovereign debt crisis continue to result in a painfully slow return of optimism for the euro given what the removal of this episode might achieve. Euro buyers seem desperate to carve words on the tombstone beyond the crisis with a bold invitation to the ECB to continue its path of tightening monetary policy.

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Euro – The euro came within a fraction of its strongest against the dollar in three weeks as buoyant spirits lifted the single currency against the backdrop of encouraging rumors that a deal for Greece was close at hand. The euro traded at $1.4447 before sellers turned the unit lower on the day. The major story doing the rounds involves incentives and concessions for existing Greek creditors should they agree to roll over bonds maturing in the two years through 2014. You can think of this as a stay of execution for the Greek authorities. The rumored incentives include preferential status for agreeable parties, higher coupon payments should they agree to roll bonds over and the payment of collateral as a token of good faith. However, an earlier report in Germany’s leading FAZ newspaper warned that the IMF might be forced to withhold its fifth tranche of Greek aid should its recent findings conclude that the forward 12 months’ worth of funding is not yet guaranteed. And with 10-year yields recently breaching pre-crisis levels it should be no surprise to learn that Athens is having a hard time borrowing from the European capital market. The euro seems to be buoyed from day-to-day by the pure hope that leaders can maintain a strong political will to put the crisis to bed. But in the meantime further evidence emerged of a slowdown in the Eurozone. May PMI manufacturing indices slipped in both Germany and France driving the Eurozone composite reading lower to 54.6 after 54.8 during April. The euro recently traded at $1.4399.

U.S. Dollar – The first of three key labor market measures is due Wednesday with the ADP employment change due to show little change in payroll growth during May. Initial claims on Thursday and the government’s employment report will be closely watched. A measure of the health of manufacturing across the world’s largest economy is likely to cool to its slowest pace in seven months when the ISM report is released later this morning. An industry report is also likely to show vehicle sales slowed somewhat during last month. The dollar index is a shade weaker midweek and trades at 74.53.

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