EUR/USD pushed to a high of 1.2610, as traders warmed to an article in the Financial Times that European officials could be warming to the idea of renegotiating terms on the Greek bailout.
This would be highly positive, and would mean that the weekend’s elections are not such a binary event, in so much as if Syriza claims victory, a fate that previously would have sent risk assets into a tail spin, then markets would be less hesitant to sell given the EU would be happy to look into the demands of Mr Tsipras’s government. Mr Tsipras has been quite vocal that he is confident EU officials will renegotiate terms, so it seems that perhaps even if Greece elect an anti-bailout government, we will not see a messy Greek exit. All eyes will fall on the Spanish and Italian bond market given Moody’s cut the Spanish rating while keeping them on review for another possible downgrade to junk. It seems traders haven’t seen it as too much of a negative event at present, with EUR/USD hardly moving; however, its rating is now one below S&P and two below Fitch, so we could easily see those agencies follow suit soon.
Italy will also try and tap investors in a three-, seven- and eight-year auction today, and given the underlying market is trading significantly above previous auctions, borrowing costs will invariably rise. The market is still very short euros, so we could easily see a melt up into the weekend. However, upside should be continued, and there seems to be reasonable stops above Monday’s high of 1.2670, so a break here in the short-term will invoke a stronger move. It seems though, that traders are happy to play the range at the moment, and we would expect buyers to step in around 1.2530, looking for a move back above 1.26.