The market has nearly had its fill of the Greek bond swap. Whether the strategy of fire-walling Greece is working will be answered in due course. However, for the next few hours investorsâ€™ actions will be influenced by the release of US non-farm payrolls.
Earlier this morning the Greek government said that the participation rate in the debt swap would reach +95.7%, after the collective action clause is triggered. About +85.8% of holders of Greek-law bonds and +69% of holders of Greek bonds under international law tendered for the swap. Getting investors to take large write downs clears the slate for now, but one must not confuse this as a final solution for the countryâ€™s woes. The PSI program is deemed to be the only way for Greece not to default on its debt later this month. An air tight deal should clear the way for a broader bailout with official creditors.
The market response has seen the EUR come under pressure; the participation rate is triggering collective action clauses and itâ€™s this that the market is taking as a cue to sell the single currency. Looking beyond the immediate reaction to PSI, the single currency should remain moderately under pressure, if only because rate differentials continue to move in the USD’s favor post LTRO.
A payroll disappointment is the bigger risk, rather than a positive surprise this morning, given the degree to which hope is building that the US economy will sustain its recent solid pace of job creation. Private reports and claims data, of late, is setting this market up for a healthy +200k+ print, with the unemployment rate hovering close to +8.3%. The details of the release are expected to be strong and would likely be supportive for risk strategies, commodity and interest rate sensitive currencies. A large surprise to the upside could potentially stoke expectations of an earlier-than-expected shift in the Fed’s policy, further hurting the funding currencies (EUR and JPY).
However, this upside is perhaps limited. Once the euphoria is over, the markets will again count the Greek cost. The fact that the EUR is failing to pick up a bid tone on the Greek news is further proof that the rally that pushed the EUR to just shy of 1.35 a couple of weeks ago is running out of steam. Dealers are beginning to focus on the interest differential for market direction. Now, itâ€™s all eyes down for NFP!
EUR Debt Relief Belief 
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