EUR/USD Surges Past 1.41 Level on Eurozone Deal

Forex traders are almost delirious with happiness today as eurozone leaders announced a deal to contain the sovereign debt crisis — at least for now. Private bondholders will be taking a nominal 50% haircut on Greek debt, and everyone seems happy about it.

For now, this has propelled the euro higher in Forex trading. EUR/USD has surged beyond the 1.41 level. However, there are some worries that the situation might still be unmanageable in the long term. Even though the banks “voluntarily” (they were facing possible bankruptcy in the case of complete Greek insolvency) agreed to the 50% cut, the IMF thought that 75% would be more realistic in helping Greece become solvent.
Indeed, even with the recent agreement (which only applies to the 210 billion euros in private debt, so a little more than 100 billion euros will be written off), Greece still faces severe financial problems. But, for now, the deal allows for recapitalization of European banks. Of course, banks are supposed to try to raise their own funds first. That doesn’t seem terribly likely in the case of Spain and Italy (much less Greece), since national finances are a mess.
But, all of those difficulties are being ignored for now. The deal is injecting hope into the markets, and risk appetite is high. We’ll see if that’s still the case tomorrow.
At 15:14 GMT EUR/USD is up to 1.4172, surging higher from the open at 1.3907. EUR/GBP is higher at 0.8825 from the open at 0.8705. EUR/JPY is also much higher at 107.49, rather than the 105.93 seen at the open.

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