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Forex News – Eurozone finance ministers fail to agree on Greece

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The news that a regular Eurogroup meeting of finance ministers broke down without a deal on Greece was the main piece of news for the forex markets during a day that the US was on holiday.  The meeting was mainly preoccupied with the Greek government’s request to change its current bailout conditions so that less austerity and more pro-growth policies would be followed.

A deal was not possible since the new Greek government refused to ask for an extension of the existing bailout deal.  The new government keeps repeating that its mandate is to end the current bailout measures, whereas the country’s Eurozone partners insist on strong conditions and on honoring the current program commitments in order to give Greece additional funds.

The inability to strike a deal during the meeting was more or less expected, but the inability to show any kind of progress was more of a concern.  In essence, Greece’s creditors gave the country until Friday to seek an extension.  The current bailout agreement expires at the end of February and without a deal before that date, Greek banks could have trouble accessing ECB funding and Greece could potentially default on debt repayments.

The developments have increased the odds of a Greek exit from the Eurozone, although the main scenario still remains that a deal that will keep Greece funded and in the Eurozone is found over the next few days.  According to some European officials the elements of a deal are there since Greece has pledged to implement the majority of reforms required by the bailout and also to fight corruption and tax evasion.

The market’s response to these developments was measured, as the market does not appear too worried about a possible “Grexit”.  The euro dropped to a session low of 1.1318 against the dollar from around 1.1415 when the Eurogroup meeting started.  Liquidity was thin however because of a holiday in the United States.  The euro reclaimed the 1.14 level in subsequent trading the following day on a stronger-than-expected ZEW German sentiment survey.

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