Euro gains on Greek deal, but doubts remain
NEW YORK (Reuters) - The euro gained against the dollar on Monday, a day after Greece approved new austerity measures, but worries about hurdles in the country's bid to avoid a disorderly default limited gains and kept the currency well off its session high as New York trading began to close.
The Greek parliament passed a package of wage, pension and job cuts on Sunday, boosting hopes Athens would secure more rescue funds from the European Union and International Monetary Fund ahead of a March bond redemption.
"The euro bounced back on Monday as Greece approved the budget-cutting measures laid out by the troika - the European Central Bank, the European Commission and the International Monetary Fund," said David Song, currency analyst at DailyFX. "But the relief rally may be short-lived as the fundamental outlook for Europe remains bleak."
The euro was up 0.1 percent at $1.3190, below a session high of $1.3283 and just off the session low of $1.3188, according to Reuters data.
The single currency faces resistance at last week's two-month high and the 100-day simple moving average at $1.3327, using Reuters data, while traders said a large option expiry at $1.3300 was likely to restrict further intra-day gains.
Markets aren't the only skeptics. Greece must also convince euro zone finance ministers, who meet on Wednesday.
The ministers are still requiring Greece to explain how 325 million euros of this year's total budget cuts will be achieved before they agree to the 130 billion euro bailout.
"We think that Greece is going to get their money by March 20, but we still think the euro's going to sell off," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
Volumes were light, Watt said.
"Most people are just keeping their heads down, they're doing things when they have to do it," Watt added.
DENSITY OF SELL ORDERS
Commerzbank said their euro/dollar order book model showed a greater density of sell orders at current levels, adding the $1.3090 area was where the balance became more neutral, and any downside move may run out of steam there.
Euro zone debt crisis in graphics:
Traders were also wary of pushing the euro higher because of uncertainty over whether private creditors would agree to write down the value of their Greek holdings. Doubts persisted whether the necessary near-100 percent acceptance can be achieved without triggering a credit default.
"Voluntary private sector participation is unlikely to be at the levels the IMF and European authorities are looking for, and this is one of the reasons for our bearish view on the euro," said Chris Walker, currency strategist at UBS in London.
Even if a voluntary agreement is reached, a debt swap could take three to four weeks to finalize, leaving a tight deadline before Greece faces a March 20 bond redemption of nearly 15 billion euros.
The euro pared much of its early gains against the yen but was still up 0.05 percent at 102.34 yen. The dollar fell 0.1 percent against the yen to 77.56 yen.
Germany's finance minister, Wolfgang Schaeuble, said in an interview with German newspaper Welt am Sonntag that Greek promises on austerity measures were no longer good enough because so many vows had been broken.
Still, with Greece effectively voting to stay in the euro zone by passing the measure, it has provided short-term relief to investors.
Fear of a major banking crisis has also subsided as the ECB was expected to provide an unlimited amount of three-year loans later this month after its first operation in December.
The bank's second offer of three-year funds to banks will draw 500 billion euros of bids, a Reuters poll of traders showed, topping the 400 billion predicted in the same poll last week.
But "as European policymakers take unprecedented steps to save Greece, Portugal may be next in line to receive additional assistance, and we may see the ECB continue to cast a dovish tone for monetary policy as the push for more austerity dampens the outlook for growth," said Song of DailyFX.
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