European banks have to repay 442 billion euros this month, but the ECB mentioned yesterday that it would fund banks worth 131.9 billion euros for three months which was lower than analyst’s projections, thus worries that European banks are relying on ECB loans to restructure their impaired imbalances eased.

Conversely, the dollar fell against a basket of major currencies as seen by the dollar index which reversed its earlier gains as it fell to 85.84 after the breach of strong support at 85.96. The dollar is showing decline for the second day ahead of the release of important U.S. data, where ISM manufacturing is predicted to drop to 59.0 in June from 59.7.

With regard to the euro-dollar pair, it rebounded on the daily and 4-hour charts after approaching support at 1.2123 which helped the pair to surge to 1.2294, where the pair is currently trading. Earlier today, the pair recorded a high of 1.2310 and a low of 1.2191, whereas for the rest of the day the pair is predicted to move between support and resistance at 1.2150 and 1.2335 respectively.

The 16-nation currency dropped earlier today after Moody’s said it may downgrade Spain’s credit rating, and as China’s manufacturing eased expansion in May. Today, euro zone’ manufacturing halted at 55.6 in June but German manufacturing sector unexpectedly rose to 58.4 from 58.1 In May.

As for the sterling-dollar pair, it is moving to the downside for the third day after closing below 1.50 psychological level yesterday. The pair is doing a downside correction to the upside trend that started since mid May and was spurred by the drop in PMI manufacturing which slipped to 57.5 in June from 58.0. The pair is currently trading at 1.4912, recording a high of 1.4973 and a low of 1.4870, while it is expected to move between support at 1.49850 and resistance at 1.5070.

Relative to the dollar-yen pair, it is continuing its fall on the daily charts today but the pair is unable to remain below strong support at 88.20. Meanwhile, the pair is trading at 88.30, recording a high of 88.55 and a low of 88.06, whereas support is seen at 88.00 while resistance is at 89.55 then 89.30.

Published on Thu, Jul 1 2010, 10:27 GMT

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Once again risk aversion pushed higher yielding currencies lower with AUD/USD suffering a 100pip decline. The move was exacerbated by weaker Australian retail sales, and a disastrous decline by -6.6% in building approvals. The data demonstrates that the RBA’s interest rate cycle has reduced demand for property buyers. With the Australian economy softening and the real threat of a slowdown in China, trader’s expectation for further interest rate hikes have been lowered. AUD/USD hit a low of 0.83126 during Asian trade but has since recovered slightly and is once again testing the 0.84000 handle.

Surprisingly, and in contrast with Asia, news out of Europe has surpassed expectation inducing a Euro rally against the dollar back above 1.23000. Sentiment towards the region seems to have improved for the time being after Spain’s successful bond auction and an interest rate hike by Sweden’s Riksbank eased fears of the on-going debt crisis. Today’s good news from the region has comes after the ECB’s tender drew less demand indicating a healthier European banking system.

Key data out of the U.S is the ISM Manufacturing PMI, Unemployment Claims and Pending Home Sales. If these disappoint we could see the Euro gains reversed as traders seek safety in the U.S dollar.

Published on Thu, Jul 1 2010, 10:42 GMT

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• The longer term solvency problems remains unsolved.
• The macro economic consequences of the crisis and of the fiscal tightening.
• Implementation risks. Will the measures be approved in parliaments and will governments deliver the needed tightening of fiscal policy?

• 

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Published on Wed, May 12 2010, 09:22 GMT

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European Markets Snap 3-Day Loss- Euro Strengthens

Asia Pacific markets were mostly weaker across the board with Japan’s Nekkei 225 closed for holiday. US equities rebounded yesterday from the losses sustained on news of downgrades in sovereign credit ratings around Europe. Modest gains came on the heels of the Fed’s continued commitment to keeping rates exceptionally low for “an extended period.” The statement highlighted improvements in business and household spending, while also noting lags in employment and commercial real-estate. The news calmed nervous investors, after global equity bourses fell on fears regarding sovereign debt contagion. The dollar was softer early in European trade as risk appetite crept back into the markets on better than expected unemployment data from Germany, and strong business climate and confidence figures from the Eurozone. Commodity prices were stronger with gold sitting just under $1170 and crude oil rising to $83.81- off yesterday’s weekly low of $81.50.

The Greek Reality

The sovereign debt crisis in Greece has brought to light the deficiencies in the nation’s economy. With the cost of the proposed 3-year aid package estimated to be as much as 120 billion euros, questions arise as to how the country will cope with the unprecedented austerity measures needed to regain control of government spending. With no significant economic growth drivers, the nation’s deficit will continue to climb unless major social reforms are implemented. Although Greece has the support of the EU, there is uncertainty as to the resolve of the Greek people as protests continue to persist in response to recent cuts in deficit spending. As a part of the rescue plan, Greece will need to adopt even harsher austerity measures. The risk of contagion still remains very real after S&P lowered Spain’s rating only one day after downgrading both Portugal and Greece. With German Chancellor Angela Merkel now urging for a quick resolution to the debt crisis, it is likely there will be a package ready for Greece by sometime next week. The euro received a respite from the heavy sell off in recent days on renewed hopes that the IMF backed UE plan will be enacted in time for the May 19th deadline, when some 9 billion euros of Greek debt mature. Although profit taking could provide some support for the euro, the medium-long term outlook remains negative. The single currency held gains past the 1.32 figure with interim resistance seen at 1.3260, backed by 1.3280 and 1.33. Subsequent ceilings are eyed at 1.3340, followed by 1.3370 and the 1.34 handle. Support starts at the figure, with additional targets eyed at 1.3180, followed by 1.3130, 1.31, and 1.3020. Past the 1.30 figure, stronger demand rests at the long-term 100% Fibonacci extension taken from the Dec 18th 08′ and Nov 26th 09′ crests, at 1.2880.

Today at 8:30am in New York, the US reports on weekly jobless claims, with 445k initial claims expected. Continuing claims are also seen lower to 4.618 million from 4.646 million. At the same time, the Chicago fed national activity index is released, with the figure expected at -.20. European markets were firmer with US equity futures also pointing to a stronger open mid-day in London trade.

Published on Thu, Apr 29 2010, 22:21 GMT

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• Southern European debt markets have entered panic mode. The purpose of this monitor is to watch developments in local and global financial markets to keep track of the contagion from the crisis. So far, local contagion to the other PIIGS (Portugal, Ireland, Italy, Greece, Spain) is evident, global contagion is limited.
• There are evident signs that the crisis is spreading to other PIIGS sovereign debt markets. Beside Greece, Portugal is the hardest hit country with its sovereign yield and CDS reaching new highs. More concerning, the Portuguese covered bond market seems to be in big trouble, with spreads widening by 150bp over the past week.
• Spain and Ireland are also hit, but to a lesser extent than Portugal. There is little doubt, though, that they are next in line. It is positive to see that the Irish CDS spread remains very low. Southern European banks are under pressure with CDS spreads wider.
• EUR touched a cycle low vs. USD yesterday and the implied currency volatility is on the rise – but still much lower than during the financial crisis.
• Although some broader contagion is evident elsewhere in global markets it remains modest. While the 3M EURIBOR – EONIA spread remains very narrow, the forward market is getting a bit nervous with the 6×9 FRA EOINIA spread moving wider.
• Global equity markets have taken a hit and volatility is moving higher, but again the contagion remains relatively modest so far.
• Eastern European currencies have weakened. The EMBI spread has widened a bit.

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Published on Thu, Apr 29 2010, 12:18 GMT

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Japanese yen –With a benchmark rate of 0.1% and accelerating risk appetite in faraway lands, the yen is losing its use in a world where risk appetite is back on the table. It slipped today against all 16 major trading counterparts falling to ¥93.50 against the dollar and ¥127.20 per euro.

Euro – While Greek bond prices are slipping hard on Wednesday, the euro actually managed a significant rally to as high as $1.3665 overnight. Boosting sentiment in the European session was firm data that showed industrial production in the Eurozone during February blew away market expectations of a 0.1% gain and in the event rising 0.9% to give an annual change of 4.1%. That’s positive news at a time when analysts note the difference in the relative pace of growth between the U.S. and Europe.

The euro later eased to $1.3612 but has found immediate support at $1.3600 this morning after a German newspaper Handelsblatt reported that a German-led package of aid to Greece is likely to be €90 billion rather than the announced €30 billion. The EU retorted that this was just speculation, but the threat of domestic unrest from German taxpayers is keeping investors undecided on the success of the package at this point. I think it is, however, worth noting that the German taxpayer might struggle to find many better propositions of a three-year 5% return over three years in this ultra-low rate environment. That is of course assuming a repayment of capital in 2013. And we could be in for a yield drought especially if the aid is not forthcoming and the Greek economy implodes on an even greater pace of contraction.

That’s something that experts at Fitch ratings today said was not likely. It forecasts only a mild and manageable Greek economic contraction. But it did say that Greece would probably lean on the EU and IMF aid packages within the next couple of weeks and would prefer not to be seen as having failed in the capital markets. The interview as reported by Bloomberg news seemed to shock the euro sending it to its intraday low. But still, it must be a comfort to the severely tested Greek PM and cardiac-attack candidate George Papandreou to know that if no one wants to lend his nation 10-year money at 7% he can always save himself 2% by knocking at the door of the EU.

U.S. Dollar – The dollar index is lower for a fourth day although the battle with the euro is keenly fought. With arguably lessening odds of a rout for the euro on the back of the Greek aid package, the dollar is making harder work of continuing its uptrend against the single European unit. Today should be event-packed for the dollar. Before Fed Chairman Bernanke delivers his economic outlook at the Joint Economic Committee to Congress, dealers will have to digest March data on inflation and retail sales.

Aussie dollar – A Westpac consumer confidence index reading slipped a shade but proved the Australian nation remained remarkably resilient against the background of five interest rate increases. The Aussie unit joined the rally in Asian currencies rising to its highest point of the week where it’s currently trading at 93.43 U.S. cents.

Canadian dollar –Ihave to take back whatI said after last week’s jobs report that was skewed towards part-time jobs. Having already burst through parity the day before the report, I noted that the Canadian dollar might now need a greater rational to keep on trucking. Today the loonie has once again taken flight and reached a 22-month high against the U.S. dollar at $1.0039 and is showing no sign of coming down back down to earth just yet.

British pound – The pound has a rather interesting chart pattern having fallen from an opening peak at the start of the week and closing that day at its low. Since then the pound has fought back and the picture looks to be one of strength. A smidge higher than its current $1.5441 invites a revisit to Monday’s peak at $1.5485, which is attainable in the event that the dollar takes a leg down on today’s data due out any moment.

Published on Wed, Apr 14 2010, 13:49 GMT

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The euro zone after expanding 0.4% in the third quarter last year expanded only by 0.1% in the fourth quarter. In addition, data concerning the first quarter of the current year is raising concerns that the 16-nation economy may return to recession again.

Today’s data showed improvement in Germany, as unemployment slipped to 8.0% in March from the revised 8.1 where unemployed dropped by 31,000%, posting the largest fall since August 2008. In the euro zone, jobless rate edged up to 10.0% in February from 9.9% in January. The rate rose to the highest level since August 1998 after remaining unchanged for three consecutive months, mirroring the slowdown in recovery witnessed recently in the euro region.

Other data released today showed that CPI flash estimate for March rose to 1.5% from 0.9% above estimates of 1.1%. Prices afterfalling in negative territories since June last year increased gradually due to the high spending and mild improvement which managed to lift prices in the past few months, while inflation moved between 0.9% and 1.0% since December. But the reading spiked this month to fastest level since December 2008 as a result of the incline in oil prices which reached a high of $83.45 a barrel this month. One of the policy makers at the BoE forecasted that the rise in commodity prices is more likely to push inflation in the coming period.

ECB in their monthly bulletin in March, however, expects low inflationary pressures over the medium term, close to the 2%, the lower bound set by the bank. Policy makers are expecting annual inflation to range between 0.8% and 1.6% this year and between 0.9% and 2.1% next year.

Despite the rise in oil prices that were slightly affected by the dollar’s advance, prices may anchor again due to the pressure stemming from the high unemployment rate that will weigh on consumer spending. Still, many companies are shedding employees to cut costs to return to profitability again.

Nevertheless, the concern now is on the swelling budget deficit in euro-zone economies. The high debt in European economies is threatening recovery that is still fragile.

Today, Moody’s said Italy to face challenging economic conditions this year as it is encountering both high debt and low growth. The Italian economy shrunk 5.1% last year and is expected to struggle this year to recover due to the high debt that reached 1.8 trillion euros which represents 5.3% of GDP and is predicted to incline to 117% of GDP in 2010.

By extension, Greece which may have an aid from the EU and IMF if it failed to cover its debt will suffer to rein in deficit to 8.7% from 12.7% by the end of the current year due to high interest on its debt sold this year. Recent data compiled by Bloomberg, Credit Agricole and Investment Bank shows that Greece will pay 13 billion euros as an interest on its debt this year more than the yields that prevailed before crisis.

After the news the euro advanced against the dollar to 1.3440 from the day’s opening at 1.3412. The 16-nation currency is unable to rebound despite the EU support for Greece as the abilities of EU economies to trim the debt to the 3% ceiling set by the EU is uncertain.

Published on Wed, Mar 31 2010, 10:02 GMT

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With regard to the euro-dollar pair, it is showing slight incline where it is facing key resistance 1.3481 which represents 61.8% Fibonacci retracement to the upside trend that started in March last year. Still, the outlook for the euro is concerning with worries that Greece and other highly-indebted European economies will not be able to tackle their huge deficits. Today’s news showed that inflation and unemployment rose in March and February respectively. The pair is currently traded at 1.3440 while recording a high of 1.3448 and a low of 1.3382, where the coming support is seen at 1.3405 and next resistance is at 1.3490.

As for the sterling-dollar pair, it is showing advance for the fifth day on the daily charts; however, the pair is facing downside pressure from the 4-hour and 1-hour charts in the absence of economic data from the U.K. today. Despite the progress seen by the sterling, it may face pressure due to political worries and high deficit in Britain. Meanwhile, the pair is traded at 1.5132 after hitting a high of 1.5144 and a low of 1.5041 while it is expected to move between support at 1.5060 and resistance at 1.5145 then 1.5225.

Relative to the dollar-yen pair, it is continuing its rally on the daily and 4-hour charts. The pair spiked after breaching resistance at 91.65 which represents 23.6% Fibonacci retracement to the upside trend that started in December. Currently, the pair is traded at 93.21, hitting a high of 93.59 and a low of 92.73, whereas support is seen at 92.70 while resistance is at 94.00.

Published on Wed, Mar 31 2010, 13:45 GMT

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In the euro zone, confidence slipped suddenly in February after reaching a record in January. After the improvement signaled in the third quarter, the pace of progress slowed in the fourth quarter and in the first quarter of 2010, raising concerns recovery may falter or be sluggish this year.

Other data to be released this week will show that unemployment climb to 10.0% in March from 9.9%, but meanwhile the main focus is not the rising jobless rate as before but is on the swelling budget deficit across EU members.

The data released recently from the euro zone is showing deterioration due to the cold weather, the unwinding of stimulus measures, and the Greek woes that reduced confidence in the euro area countries.

However, the outlook may improve in the coming period after the EU endorsed the German-French proposal of giving an aid to Greece through a combination between the IMF and EU loans. But debt concerns are still persisting despite the aid introduced last week to Greece as many EU countries are still suffering from high debt and may not be able to reduce their debt to the 3% ceiling set by the EU this year.

For instance, Fitch Ratings lowered Portugal’s sovereign credit rating to AA-minus from AA on Wednesday and said that it sees negative outlook for the country. Spain is also suffering from high debt along with other macroeconomic problems which may open the door for European economies to ask for assistance in the coming period.

Moving to the British economy, growth rebounded to 0.3% from 0.2% contraction in the third quarter, while annually GDP came in at -3.3% from -3.2%. Growth estimates this week are showing that the final reading will remain unchanged from the flash reading.

The preliminary reading showed that the incline was led by services output was which was revised to 0.5% from the previous 0.1%. The reading was lifted also by private consumption that climbed to 0.4% from 0.1% and government spending which spiked to 1.2% from the revised 0.4%.

Data released recently from the U.K. is showing improvement and providing evidence the economy is on the right track towards recovery. However, Darling mentioned in the annual budget report that growth this year will be between 1%-1.5% inline with previous expectations, while it is presumed to range between 3 and 3.5% next year, which lower than the prior expectations of 3.75%.

Nonetheless, aside from the political pressure of having a minority government, the main focus remains budget deficit woes that are threatening recovery in the economy. Darling said in his budget statement to the Parliament that he pledges to slash the budget deficit by half within four years, as the government is going to reduce borrowing without hurting the recovery of the nation.

Darling revealed that borrowing will retreat to 131 billion pounds in 2011-2012 then to 110 billion pounds in 2013-2012 till reaching 89 billion pounds by 2014-2015 then 74 billion pounds after that.

Published on Sun, Mar 28 2010, 09:34 GMT

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