User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday May 10, 2010 - 19:45:36 GMT
Foreign Exchange Analytics - www.fxa.com

Share This Story:
| | Email

EU, ECB Buy Time, Not a Solution

There is no question that the scale of the EU-IMF budget emergency fund is enough to give former US Treasury Secretary Paulson a serious case of bazooka envy. 

 

But Paulson and Congress were firing their bazooka at a banking system with the support of zero cost of funds (thank you Ben), a steep yield curve and a Bush and then Obama policy of pushing the restart button for banks (reform later when new too bigger banks to fail are back on their feet) allowed banks to race back to profitability, write off plenty if not all toxic assets and recapitalize in a time that might see an arrow-shooting Usain Bolt celebrate. 

 

However, the near bottomless pit of potential aid on the table for the Club Med (and any comer) is not going into a rigged outcome like US banks enjoyed in the last 18 months.  Instead it should remind boat owners of a never ending black hole of expenses and an ever depreciating asset.  All the program achieves is the door of liquidity for the distressed sovereigns is open for a finite period if the need arises.  However, it does nothing to resolve the question of solvency, especially in the case of Greece.  Growth is the decisive factor too regarding solvent and insolvent credits.  Without it even countries with relatively better balances like Spain can get pushed toward insolvency relatively rapidly if the economy contracts for an extended period of time.  Naturally access to this pool of government liquidity comes with conditions, and a rate well above the Euro Area “risk free” rate.  Indeed austerity measures make restarting the local economy of Greece and Portugal more difficult.  And in the case of Greece it may well be past the tipping point of the debt death spiral…more austerity measures demanded for funding drives the economy deeper into recession and indebtedness.

 

Assuming Club Med growth is not in the cards for 2010 and 2011, then it all boils down to fiscal adjustment to turn this liquidity free pass (with a 1-2 year expiration) to get spending down and tax receipts up which for Greece seems a near impossibility.  Spain has a more private indebtedness problem than a public one like Greece’s and Portugal’s, so it should be able to soldier through, though not even Spain can carry on for long with a 20% unemployment rate and no growth which would drive private indebtedness higher and require ever greater public expenditures. 

 

And we don’t know what kind of approval process is needed to really free up these funds to the likes of Greece.  German Chancellor Merkel is smarting from a thumping in the NRW election which saw her coalition lose its majority in the upper house.  Returning to the parliament for approval for a much bigger bailout facility after the NRW result seems sketchy at best.  Merkel said only that she would see her cabinet approval (the structure of the aid is being offered through an emergency facility provided in the Maastricht Treaty which may negate the need for government approval…assuming legal challenges fail). 

 

Also the allocation of the funds has not been established – IMF to run it initially but one would think that a European Monetary Fund may be in the cards.  And there is some speculation that the European Commission will use this crisis to begin issuing bonds which would help shift focus from the part to the whole of the EU/EZ.  But this would have to come with central authority over local debt issuance which itself suggests a significant surrender of autonomy and surely that is not politically feasible. 

 

Looking at the ECB part of the bailout, one is struck by the flexibility of the central bank…indeed so flexible that Trichet’s 180 degree shift from last Thursday, to me anyway, raises issues over his credulity.  Watching the EUR trade in response to news of the ECB’s role in the bailout it was interesting - to see the EUR first sell off on news of planned purchases of EZ government bonds by the ECB only to reverse when the ECB finally issued its own statement indicating it would sterilize the bond purchases and thereby not engage in quantitative easing or debt monetization (unabridged endorsement of inflation).   Show me the journal article on monetary economics that establishes when credit easing ends and quantitative easing starts.  The Fed is still asserting that its massive expansion of its balance sheet is not quantitative easing as it plans to sterilize it (sell back assets bought and use other tools to take liquidity out of the banking system on a longer-term basis).  I would not get too caught up in the debate of CE vs QE or the suggestion that somehow the former is less destructive for a currency (all else being equal) than the latter.  How destructive this turns out to be for the EUR should depend on how much debt the ECB buys, and not what it is called.  If the ECB sterilizes bond purchases immediately then it has a legitimate claim to downplay the inflationary consequences of the policy tool.  But even under this circumstance, the ECB has gone political no matter the timetable and size of debt purchases and this had to be hard for Trichet and everyone else on the ECB governing council last night.  Moreover, any central banker knows the problem the Fed faces in unwinding its own asset purchase program (see the Milken Institute panel discussion with WSJ’s Hilsenrath, AEI’s Reinhardt and a few others – link in my Alert email last week…hat tip to Aitken’s NFSI for this key discussion).

 

So here is what I really think on the euro….the ECB has gone off the reservation of price stability and independence.  And with the CDS and European bank stocks relieved from trench warfare for the time being, the focus should shift to the EUR…a confluence of selling that was previously split among Euro Zone bank stocks, sovereign CDS and credit/bond spreads may now get channeled into the euro.  If I am right about this (EURUSD is back to where it traded at the open of Asia trading earlier today when markets first reacted to the news) the EUR is about to come under ever greater selling pressure.  And this begs the question of what next?  Keep in mind that weak links in the EZ chain benefit from a lower euro and there is scope for imported inflation in light of the very wide output gap and the desire to avert deflation (unstated but implied by ECB actions).  I have to think that behind the scenes there are active discussions about a euro rescue plan, just in case I am right about the channeling of negative EZ sentiment (fiscal and monetary in nature) into the EUR…coordinated intervention from G20 – aimed at introducing two-way risk…c bankese for smoothing declines and not necessarily reversing the move.

 

If the ECB and Europe, or the rest of G20, decide that currency intervention is not its cup of tea, then plan C looks like a form of capital controls sold under the auspices of a smack down on speculators.  Legislating away hedge funds, leveraged trading and the CDS market is no way to hide what is wrong with the EZ.   Ironically, legislating away the CDS market will increase selling pressure on the EUR in times of stress over EZ fundamentals…one less hedging roadway for investors and speculators to take.  And if some are right, and I have no reason to doubt them, the EZ learned quite recently that the selling of Club Med bonds was not simply speculative in nature…German pension funds and insurance firms were running from this risk en masse.  And it is very clear that the banks themselves with exposure to Club Med bonds played a key role in the move up in sovereign CDS as they hedged risk. 

 

I have thought through the move down in EURUSD that started around the end of 2009 has been orderly with the exception of last Thursday.  And the euro is still above its long-run average of something in the 1.18-1.20 area versus the dollar.  Moreover the late 2000 low was ..8225…miles away.   Yes even with coordinated intervention ahead, because CDS, bank stocks and bond spreads are temporarily underwritten by the EU and IMF, the EUR is now the only way to express a bearish view on the Euro Zone -  all roads now lead to the euro autobahn with only central banks trying to impose a speed limit.

 

David Gilmore

 

 

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 15 December 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Thu 14 Dec
23:50 JP- Tankan Survey

Mon 18 Dec
10:00 EZ- final HICP
Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP
Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes
Mon 25 Dec
00:00 Christmas Holidays

Forex Trading Outlook


Potential Trading Opportunities

  • POTENTIAL PRICE RISK: HIGH-Medium- Thu --23:50-- JP- Tankan Survey
John M. Bland, MBA
co-founding Partner, Global-View.com EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog

Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105