The Greek government is trying to manage a balancing act, negotiating with 3 political parties who are backing the government, whilst at the same time negotiating with the Troika (EC, ECB and IMF) as well as on-going negotiations with the IIF regarding Private Sector Involvement. The market seems to be rating the possibility of a Greek default at closer to 50%, up from the 25% which was estimated last week.
Short term moves in the EUR/USD will be dependent on the outcome of all these talks. The market remains very short, so if any or all of the negotiations end favourably, then we can expect a very sharp short-covering rally, which will take out stops above 1.3255/70 and likely propel the pair towards 1.3400 very quickly. If the talks fail, then the shorts will hold their nerve and real-money and corporate sellers will likely force the pair back under 1.3000.
