Calming In The Eurozone Debt

The Week Ahead Highlights Better data drives risk on, Fed QE3 off Still waiting on a Greek debt deal Central banks' decisions on tap Better data drives risk on, Fed QE3 off The past week ended with a string of better-than-expected data releases from key major economies, suggesting the global recovery may avoid a more worrisome downturn. Mostly better than expected PMI's from Europe, UK, China and the US were supplemented on Friday by a much stronger US employment report than was expected. We're cautiously optimistic that the better US jobs report is a valid signal that the US recovery is improving, but we're also aware that January employment numbers are especially volatile due to seasonal factors, and subject to major revision. The decline in the unemployment rate in the ...

FX markets were relegated to range bound directionless trading in the Asian session as the lack of substantive news and data kept traders sidelined. EURUSD traded between 1.2910 and 1.2960 for the most part, with a temporary relief rally to 1.2990 on the back of reports that Japan’s Finance minister Noda said Japan intended to purchase bonds issued by Europe’s financial rescue fund (next issue due €6-8bn around the end of January). Follow though in the EURUSD move evaporated as most traders preferred to wait for today’s upcoming bond issuances before making bets on the EUR’s direction. Obviously, a show of support from a country with the economic might of Japan would have a calming effect on the markets, and in turn, risk correlated assets briefly rallied. However, the lingering reports ...

FX Briefing Highlights * Chinese monetary policy remains growth-orientated; interest rates on hold for now * US retail sales data show sound domestic demand * EU leaders approve treaty amendment to allow permanent crisis mechanism * Moody's lowers Ireland's rating by 5 notches; outlook for Spain negative, but AA * Sweden raises interest rates, Switzerland maintains 0.25% target Moving Sideways at the End of the Year There have been many ups and downs in the forex markets this year. The first half of the year saw the euro lose ground due to the escalation of the Greek crisis. From December 2009 to June 2010, EUR-USD fell from over 1.50 to below 1.20. As from summer, when the European bond markets were gradually calming down again, the euro rapidly began to strengthen ...

The announcement of the $1 trillion EU/IMF rescue measure hit risk sentiment like a canon ball. The EURUSD gapped at the market open and quickly traded to 1.3043, roughly 2% higher than Friday’s close. The huge package was designed to “shock and awe” markets, reminiscent of the 2008 US bailout. The emergency fund is aimed at calming markets, halting further contagion and mitigating systemic risk. Broadly speaking, the Euro-zone will use its existing stabilization fund, setup during the 2008 crisis, and add €60bn by issuing EU bonds. EU members will guarantee up to €440bn to be drawn by any member state facing fiscal difficulties. The IMF has further committed to provide an addition €220bn, on a case-by-case basis, to troubled EU nations. In addition to calming debt markets, the ...

Highlights * Crisis escalates on downgrading of Portugal, Greece and Spain... * ...but EU/IMF negotiations with Greece about to conclude * Eurozone economic data surprisingly robust, recovery gathering pace * ECB Council's assessment of economic situation likely to have improved... * ...but ECB expected to exercise caution due to debt crisis * Upbeat outlook on US labour market figures limits upward potential of euro Aid Package for Greece Eases Pressure on Euro EUR-USD plunged to a fresh 1-year low of 1.3114 this week as the debt crisis intensified. The European single currency could have bottomed out, however. In our view, the euro is unlikely to fall further, for the following reasons: 1. The escalation of the Greek debt crisis after S&P cut Greece's rating ...