The world’s leading economic powers said they would not allocate more money to fight euro zone debt crisis until the European members increase their own contributions. According to the statement issued by G20 finance ministers in Mexico City last night, euro zone leaders are required to increase their own rescue fund before any more external resources were allocated via the International Monetary Fund. Earlier this month, euro zone leaders set up a permanent bailout fund of 500 billion euro, and they plan to further reassess the strength of their support facilities in March. The outcome will provide the basis for ongoing consideration to get access to the IMF’s additional funding. A potential decision to increase the euro zone rescue fund is likely to put more pressure on the leading euro zone economies, especially Germany. So far, Germany was not clear regarding whether it was prepared to support such a move. The euro zone debt crisis resulted in a slowdown of the economic growth in the region’s economies. Europe is a key market for Asia exports, hence as its growth slows down, consumer demand is likely to fall and hurt Asia’s export-dependent industries.The fear is that if the appropriate measures are not taken in time, the euro zone debt crisis may start to hurt global economic growth. The G20 finance ministers warned that risks to global economic growth continue to remain high. Source: BBC
Archive for February, 2012
G20 Demands Euro Zone to Increase Its Rescue Fund
Posted in Ifta 
Tags: aud, cad, chf, eur, european, forex round up, gbp, global-economic, growth-continue, International, statement 
Comments OffFast Money Sells EURs
In this market, one should not put too much faith on a deal being signed, sealed and enjoyed by investors, despite knowing that anything is possible, look at Berlusconi! G20 came and went this past weekend. There were no surprises, no magic potions, and no magic plans concocted for Europe. Member finance ministers told the Euro-zone that it would need to strengthen further its permanent and temporary EFSF/ESM firewall programs before any of the members can commit to expand funding for the IMF for use in Europe. Greek event risk obviously dominates their reasoning. Greece still needs to pass 38 demands by the troika by Wednesday and there is that little problem of a bond swap uptake. The haircut for private bondholders requires +66% of volunteers. Will they be found when they get only +26-cents in the dollar? These reasons alone has the EUR bear baffled why the single currency has managed to recover just shy of 1.35 in the aftermath of a questionable Greek deal and no G20 support. However, it seems in the late Euro shift this morning, price action may be turning over with the market beginning to experience some negative EUR movement. Is the market finally waking up and realizing that the primary event this week can be EUR negative? The ECB will conduct its second 3-year Long Term Repo Operation (LTRO) on Wednesday, the same day as the last of the troika demands. So far, the market consensus is for an allocation holding around +EU470b. Market thinking has a sub-EU200b uptake to ‘generate a significant hit to risk sentiment and peripheral sovereign debt.’ In contrast, a result above +EU500b would likely result in a near-term strong risk rally and reinforce recent gains in risk sensitive currencies. That is fine in theory, but, how long is the risk rally to survive? However, with a large allocation uptake, the single currency potentially has more to lose. Obviously, a larger number will create that initial knee jerk euphoric move, however, once investors realizes that this excess liquidity is likely to depress Euro front-end rates further, should keep the EUR vulnerable outright and against the crosses. Again, this is where FX traders require their FI hats. Also, one will have to question why Euro-banks are so enthusiastic for funding? What about the link between banks and the sovereigns? It seems that fast money again is looking to trigger the weak EUR long stops below 1.34 ahead of the North American Open. Earlier it was Easter Europe and the Middle-East who happened to lean on the single currency. The eventual German approval for the Greek package should support the currency, but how long can ‘one’ bear the burden of sole support? Other Links: Yen Tumbles as Importers sell JPY
Japanese Yen Falls Against US Dollar & Euro
By Daniel James Hayden IV The Japanese yen reversed course and strengthened against the American dollar, the euro and other major currencies during trading on Monday. One of the reasons for the strengthening yen was that the Group of 20 resisted the requests from European Union leaders to increase the contribution from the International Monetary Fund (IMF) being used to help bolster the defense against a possible euro zone financial meltdown. With the future of the euro looking a bit bleaker, traders began moving funds back into the yen, which along with the Swiss franc is considered a safe haven currency. Although most analysts believe that the yen will weaken further against the dollar over the next year, the yen has fallen quickly against the dollar over the past two weeks. Before today’s trading session, the yen had weakened over the past two weeks since the Bank of Japan announced that it was stepping up its efforts to cool the rising yen. Two weeks ago the Bank of Japan said that it was setting an official inflation goal of 1 percent in order to fight the deflation that has plagued the Japanese economy for most of the last two decades. The Bank of Japan also announced that it was pumping 10 trillion yen ($124 billion) into the Japanese economy. Those moves followed an earlier confirmation by officials at Japan’s Finance Ministry that they had conducted stealth currency interventions last year in order to weaken the yen and that might do so again in the future if speculators continued to push the yen higher. The efforts of the Bank of Japan and the Finance Ministry finally halted the yen from moving higher against other major currencies and began to ease the pressure that Japanese exporters were feeling. Japanese companies such as Sony and Toyota Motor Corporation had long complained that the yen was overvalued and was making it difficult for them to earn a profit on their exported goods. News that the Japanese economy shrank a worse-than-expected annualized 2.3% during the fourth quarter of 2011 may have also played a part in the Bank of Japan’s decision to take decisive action to halt the rising yen and make Japan’s export-driven economy more competitive. Although many Japanese might be worrying today about where the yen will go from here, it seems more than likely that Japanese officials will stick to their plan to weaken the yen in order to give the Japanese economy a much needed economic boost by making Japanese exporters more price-competitive.
Posted in Ifta Tags: Bank, european, european-union, future, International, Japan, japanese, Major, over-the-past, Strengthening, swiss Comments OffEUR’s Risk and Reward limited until LTRO
It is to be expected that FX price action would be rather subdued ahead of the second 3-year LTRO announcement tomorrow. It will be then, that the first squeeze will occur, either positive or negative. Thus far, investors are playing by the old adage “buy the rumor, sell the fact.” Market consensus is for an allocation around +EU470b. Anything below a sub-EU200b uptake will hurt risk sentiment, while a result above +EU500b would likely support a stronger risk rally and reinforce recent gains in risk sensitive currencies. That is fine in theory, but, how much pre-pricing liquidity injection is the market taking on? With a threat of a large allocation uptake, the single currency potentially has more to lose. Eventually, this excess liquidity is likely to depress Euro front-end rates further. It is this that should keep the EUR vulnerable outright and against the crosses. If there is such a large uptake, naturally the market will be questioning why Euro-banks are so enthusiastic for funding. It seems to be a rotating exit door when it comes to reasons for shortening the EUR. Mind you, price action over the past five sessions will have tested the ‘metal’ of many traders! The single currency has even managed to shrug off reports that S&P had put Greece into selective default. Certainly not something wholly out-in left-field, however, S&P had said that it is likely to raise Greece’s ratings back to CCC after the debt swap. The fact that the German Bundestag had approved the second Greek package with such a large majority has also aided some of the periphery debt auctions. Large reinvestment flows and the prospect of more cheap ECB liquidity has helped the Italian Treasury to sell ‘the top planned amount of bonds’ this morning. Italy issued +€6.25b in 2017 and 2022 bonds. The auctions have allowed Italian 10-year borrowing costs to fall to their lowest level since August. The auction yield fell to +5.50% from +6.08% a month ago. Demand for the 10-year tranche (+€3.75b) totaled 1.4 times, very much in line with last months much smaller issue. The ECB move to shore up funding is allowing lenders to buy European bonds with some confidence. Maybe we are due an underperformance effort soon? Periphery yield linearity is not a norm! Fundamental data is also taking the EUR’s side this morning. Euro-zone economic sentiment rose to 94.4 this month from 93.4 and an excuse to be supporting short term and macro-economic demand for the single currency. Again, the currency’s upside remains somewhat limited ahead of a well publicized 1.35 option strike. On the other hand, it should keep investors looking at the EUR crosses for better value. Risk and reward should be rather limited ahead of the LTRO results tomorrow. Remember, on Wednesday, the ISDA (international SWAPs and Derivatives Association) will decide on whether a credit event has occurred in Greece. If the answer is in the affirmative, then the CDS’s are triggered, bringing another large unknown back into the picture! Other Links: Fast Money Sells EURs
Posted in Ifta Tags: affirmative, after-the-debt, aud, cad, dean's fx, eur, gbp, greece, italian, jpy, Market, Money, morning, taking-the-eur Comments OffS&P downgraded Greek debt to “selective default”
Rating agency Standard & Poor’s dropped Greece’s rating from the previous CC level to the level classifying Greek debt as in “selective default”. The statement came as a result of the formal offer document, presented by the Greek government last week, for its agreement to exchange bonds for new securities, with investors taking 53.5 percent reduction in the value of their investments. Banks and other financial firms are also being asked by Greece’s government to take a 53.5 percent loss on their Greek sovereign bonds. The plan agreed by the Greek parliament last week should reduce the country’s debt by 107 billion euros. S&P said that when the debt exchange was complete, it would assess Greece again and possibly raise its rating. The downgrade follows a reduction last week by Fitch Ratings to C, while Moody’s Investors Service has said it will cut the nation to its lowest rating. The Greek government said S&P’s move had been expected and it would not hurt the banking industry. Source: BBC
Posted in Ifta Tags: Banking, cad, eur, Financial, forex round up, gbp, government-last, government-said, usd Comments OffIreland to hold EU Fiscal Referendum
The Government is to put the revised European Union fiscal compact treaty to a referendum, the Taoiseach told the Dáil this afternoon. Scheduled Dáil business was interrupted for the statement. Enda Kenny told the House that the Attorney General’s advice at this morning’s Cabinet meeting was that “on balance” a referendum was required to ratify it. The Taoiseach said that he intended to sign the treaty at the weekend with all the heads of the EU in Brussels. In the coming weeks, he said the Government would finalise the arrangements and the process leading to the referendum, leading to the establishment of a referendum commission. “I am very confident that when the importance and merit are communicated to the Irish people that they will endorse it emphatically by voting yes to continuing economic stability and recovery,” the Taoiseach said. “In the end what this will come down to is a vote for economic growth and stability,” Tánaiste Eamon Gilmore said. “We now have an operation to go beyond the casino capitalism.” Irish Times
Posted in Ifta Tags: attorney, aud, cad, chf, Establishment, forex round up, gbp, house, Importance, process-leading, referendum, told-the-house Comments OffYen Poised for Short-Term Bounce; ECB LTRO, Fed Chair Bernanke Due – February 27, 2012
By Joel Kruger, Technical Strategist for DailyFX.com
Posted in Ifta Tags: Australian, broader, chair-bernanke, chf, coming, Currency, eur, Formation, gbp, greece, possibility, price, strategist, top stories, usd Comments OffDollar / Yen Short Side Favored Under Sunday Night Low
The USDJPY has reversed sharply following the 5 wave advance from the 2/1 low. Supports to watch in the coming week(s) are 7990, 7935, 7865, and 7830. Play the short side as long as price is below last night’s low (8166). Resistance is 8075.
Posted in Ifta Tags: below-last, chart of the day, coming, play-the-short, sharply-following, side-as-long, the-short, top stories, wave-advance Comments Off