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Aug. 30 (Bloomberg) — Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce, discusses the outlook for the euro, Swiss Franc and yen. He talks with Owen Thomas on Bloomberg Television’s “Countdown.”
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On July 21st, Eurozone officials together with the International Monetary Fund agreed to provide Greece with a second bailout package. This bailout became necessary when Greece found itself unable to borrow funds at an acceptable rate. The premium demanded by investors pushed the yield spread on Greek debt to record highs and Greece simply could not afford this additional expense.
In order to prevent an outright default on upcoming debt obligations, a commitment of 109 billion euros in emergency funding was quickly brokered. The only problem is that now, more than a month later, individual governments continue to bicker on the details and the money is still to be delivered.
Finally deciding that enough is enough, European Central Bank President Jean-Claude Trichet today urged officials to end the delay tactics and formally approve the rescue package.
“The full and timely implementation of the July 21st agreement between the heads of state or government is of essence,” Trichet said in comments to the European Parliament’s economic affairs committee earlier today.
Finland Demands Collateral for Greek Loan
Germany’s growing contempt with the need to provide hundreds of billions or euros in support for at-risk countries has been well-documented. However, in recent weeks it has been Finland that has been most vocal in opposition to the hand-outs and last week, Finland decided to take an unprecedented step to protecting its investment in Greece.
On August 19th, Finland announced that it had reached a “side” deal with Greece in which Greece agreed to place 1 billion euros in accounts managed by Finland to serve as collateral in a private deal between the two countries. This news has not been well-received by the other Eurozone members.
First of all, Greece is broke so just where exactly did Greece come up with the cash to serve as collateral? There can be only one answer – and the idea that any portion of the money already fronted to Greece to stave off bankruptcy now being used as collateral for Finland must be particularly galling to German Chancellor Angela Merkel. After all, Merkel has faced a great deal of heat from German taxpayers and on more than one occasion has been forced to defend her government’s actions to voters at home.
Secondly, only Finland so far has negotiated a collateral deal with Greece. This is either a stroke of genius on the part of Finnish authorities or an example of unmitigated nerve. Either way, Finnish Prime Minister Jyrki Katainen has made it clear that Finland’s participation in the rescue scheme is entirely dependant on this bilateral agreement to ensure protection for Finland’s investment.
Still, this doesn’t say much for Finland’s confidence in Greece’s prospects, does it?
Scott Boyd is a regular contributor for the OANDA MarketPulse FX blog.
Liquidity will likely be higher in today’s early trading as several events are being published in rapid succession from Britain, Canada and the US. American liquidity will be heightened, and Canada will contribute to today’s movements with its inflationary data and current account (trade balance).
The US dollar (USD) was seen trading mildly bearish early Monday as traders viewed comments by the Fed as a sign of potentially impending hawkish moves on the policy front. The sudden jolt to risk appetite generated by such movement pushed down on the greenback, but seems to have lifted following fears of bank interventions in Japan and a string of reports out of the euro zone today which could reverse much of the markets recently acquired short-term stability.
Data from the American housing market yesterday also signaled a downturn in home sales from the previous month, revealing a slump in housing demand, potentially linked to a string of foreclosures expected in September. The news has done little to the forex market, however, though it could ripple through longer-term analyses on US capital markets.
As for today, the US economic releases will focus mostly on housing and consumer confidence. Today’s publications, however, will mainly be Britain-centric. Liquidity will likely be higher in today’s early trading as several events are being published in rapid succession from Britain, Canada and the US. American liquidity will be heightened, and Canada will contribute to today’s movements with its inflationary data and current account (trade balance).
The euro (EUR) is expected to be seen trading with bullish results this morning ahead of a slew of reports from Great Britain, Canada and the United States. Against the US dollar (USD) the euro has been seen trading somewhat bearish as the greenback moves upward against its currency rivals.
Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc (CHF) and Japanese yen (JPY) make gains; though central bank interventions in Japan may offset the JPY’s gains.
Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk. With a heavy news day ahead, many traders are anticipating significant data releases to move the market. If today’s data continues to reveal negative market directionality, the EUR is likely to remain bearish.
The Japanese yen (JPY) was seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending interventions by the Bank of Japan (BOJ). Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.
The latest moves of the yen are causing some concerns, however, as many speculators are anticipating another round of intervention by the BOJ. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan’s current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.
Crude Oil prices held steady Monday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are beginning to generate some risk taking after statements by the Federal Reserve began to cause investors to seek out higher yields.
An expected dip in dollar values due to this week’s risk seeking environment has helped many investors ram up their long-taking positions on physical assets, but with the USD’s losses not materializing in large enough numbers, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.
Last Friday’s candlestick posted an outside day up, a telling bullish signal. The EUR/USD has followed up this price action by breaking out above the falling resistance line off of the May high and triggering stops that were lurking above the 1.4520 area. Initial resistance for the pair comes in at 1.4540. A close above 1.4700 would signal an end to the sideways price action and open the door to the May high of 1.4940. To the downside the euro may find willing buyers at 1.4325 where the 20-day moving average is located. Further support is found at 1.4260 off of the rising support line from the July low as well as the long term trend line at 1.3940.
After failing to make a close above the 1.6550 resistance level sterling was sold only to find support at its 55-day moving average near 1.6210. Rising daily stochastics hint at an additional test of the range between 1.6550 and 1.6615. A break here may have scope to the April high of 1.6745. Should the 55-day average fail to contain the pair support is found at 1.6110 where the 200-day moving average is floating. 1.6000 may also prove to be supportive.
The doji candlestick reversal has bought the yen some temporary respite from the selling pressure at the 76 yen level as the pair failed to test the all-time low last week. However, falling stochastics appear on both the weekly and monthly charts and hint at additional declines in the USD/JPY. A lack of support on the charts makes it difficult to find a target to the downside. A move higher could see resistance at last week’s high of 77.70 followed by 78.50 and the post intervention high of 80.20.
The reversal of the USD/CHF continues and the pair is beginning to show additional bullish signs. Traders should eye the close of the monthly candlestick. As it stands now the candle is set to close on hammer pattern, a potential reversal pattern that hints at additional gains. The pair is testing the falling trend line from the February high at 0.8090 and if broken could turn into support as often occurs with previously broken trend lines. Additional resistance is found at 0.8270 followed by the 100-day moving average at 0.8340.
The kiwi has performed well over the past three trading days but has ran into resistance at its previously broken trend line from the mid-March low which comes in today at 0.8520. Forex traders may watch for a break here as there is limited resistance on the daily chart to prevent the pair from reaching its August 1st high of 0.8840. Support is seen back at 0.8160 and 0.7960.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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The National Bank of the Republic of Belarus will raise its refinancing rate by 500 basis points to 27.00% from 22.00% on the 1st of September, according to Belarusian news agency, NAVINY.BY. The move is aimed at tackling Belarus’ high inflation levels, as the East European nation deals with its economic crisis. The Belarusian central bank last raised the refinancing rate by 200bps to 22.00% on the 17th of August, when it noted: “Along with general economic measures undertaken by the government, this tightening will help stabilize the external economic situation and limit inflation,”.
The move will bring the total increase in the refinancing rate for 2011 to 1650 basis points (from 10.50%), the Bank previously also increased the interest rate by 200 basis points on the 13th of July, 22nd of June, and 1st of June. Belarus reported consumer price inflation of 36.2% in the year to June, according to the National Statistic Committee, meanwhile the government is forecasting 2011 inflation of as much as 39%. The USD-Belarussian ruble exchange rate has double on the black market, rising to as much as 7,000 per dollar (approx. 6,000 in July).
USDCHF’s upward move from 0.7067 extended further to as high as 0.8240. Support is now at 0.8075, as long as this level holds, uptrend could be expected to continue, and another rise to 0.8400 is still possible. On the other side, a breakdown below 0.8075 support will suggest that a cycle top is being formed on 4-hour chart, then consolidation of uptrend could be seen to follow.
The State Bank of Vietnam raised the required reserve ratios on foreign currency for credit institutions by 100 basis points. The ratio on non-term foreign currency deposits and deposits of less than 12 months will be 8% (7% previously) for most State-owned commercial banks, joint stock banks, 100 percent foreign owned banks, joint venture banks, and foreign bank branches. The ratio will be 7% (6% previously) for the Bank for Agricultural and Rural Development, the Central People’s Credit Fund, and cooperative banks. The ratio on deposits longer than 12 months will be 6% (5%) and 5% (4%) respectively for those two groups.
Aug. 29 (Bloomberg) — John Silvia, chief economist at Wells Fargo Securities LLC, talks about the outlook for the U.S. and global economies, and central bank monetary policies. Silvia speaks with Francine Lacqua on Bloomberg Television’s “Last Word.” (Source: Bloomberg)
Aug. 29 (Bloomberg) — Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., talks about the outlook for Asian equities and gold. Naeimi speaks with John Dawson on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)
