- Euro surprisingly resilient despite heightened risk surrounding Greece
- Formal Greece request for IMF/EMU bailout nonetheless forces declines
- Inaccurate accounting only heightens stress on Greek bonds

The Euro fell to fresh 11-month lows against the US Dollar on continued fiscal crises in Greece and implications for the broader Euro Zone, but a late-week bounce left it scarcely changed against the US currency. Greece shook European markets as it formally requested the financial aid package offered by other Euro Zone members and the International Monetary Fund, temporarily pushing the Euro significantly lower against major counterparts.

Exorbitant market yields on Greek sovereign debt made it plainly clear that bond investors had little interest in extending further credit. Indeed, the spread between the Greek 10-year treasury yield and the benchmark German equivalent continued to set fresh record-highs in the days leading up to the announcement. The European Monetary Union and IMF’s next moves will take on great significance as the single currency zone suffers its worst crisis since its inception. Euro traders will undoubtedly react to any and all developments surrounding the sovereign debt crisis, and any further uncertainty could push the downtrodden EUR to fresh depths against the US Dollar.

The most important questions surrounding Greece are simple. First, will the EMU and IMF comply with Greece’s requests and provide financial aid in a timely matter? The second: will the proposed package be enough to solve Greece’s fiscal crisis? The third and perhaps the most significant: will the Greek fiscal crisis spread contagion to other at-risk EMU members such as Spain and Portugal? Greece comprises a fairly small percentage of Euro Zone GDP, but its influence on the Euro has been substantial. We would argue that this is due to fears that fiscal issues could spread beyond its borders and harm EMU stability. The currency union has thus far held strong with one of its members at legitimate risk of default and in need of financial assistance. One has to wonder whether a second country would prove too much to handle and cause legitimate fears of EMU instability. All these questions will likely need to be answered before the Euro can sustainably recover against major world counterparts.

Fundamental news events will likely take a back seat to Greece-related issues in the week ahead, but it may be nonetheless important to watch price action surrounding several key data releases. Significant surprises in the German Unemployment Change report may particularly force sharp short-term moves in the EURUSD, while broader Euro Zone Unemployment data has a modest chance of moving markets. Nothing stands out as far as consensus forecasts are concerned, and it is difficult to handicap markets’ reaction to said data releases. It nonetheless remains more important to monitor any and all developments with Greece, the IMF, and the broader EMU.

DailyFX provides forex news on the economic reports and political events that influence the forex market.