Posted on 13 April 2010
Euro Pulls Back From Early Gains
The euro pulled back from early gains after the Greek debt auction showed that investors demand high yields to hold Greek debt. Greece easily sold its issue of 6 and 12-month T-Bills and raised about 1.56 billion euros. High borrowing costs have made it difficult for Greece to manage its massive deficit. The high premium demanded by investors makes it likely that Greece will need additional financial aid. On Monday the euro rose near a one month high of $1.3691 after EU finance ministers agreed on an aid package for Greece but fell as investors sought clarification about the aid plan. Marc Chandler, of Brown Brothers Harriman stated, “With the Greek bill auction behind it, the market may lack a clear focus, but sentiment towards the euro remains poor, even though there had been some short-covering in the futures market in the most recent reporting week.” Despite the successful auction of Greek debt investors remained concerned about the yield Greece has to pay and some believe borrowing costs for Greece are not sustainable. Audrey Childe-Freeman also of Brown Brothers Harriman stated, “The higher yield confirmed the high risk premium demanded for Greek assets and that has put the euro bears in a stronger position. The euro was already showing signs of fatigue.”
Greek Finance Minister Says Greece Will Stick With Market Based Funding
Despite the sale of Greek t bills many investors believe that at some point Greece will be forced to seek outside aid. Greece sold 1.56 billion Euros of 6-month and 1-year treasury bills which may fill short term needs for the debt ridden nation. Analysts say that Greece faces a long hard road to recovery. Ben May of Capital Economics stated, “Today’s successful Greek short-term debt auctions will further ease fears about Greece meeting its near-term financing needs, but it still faces an uphill struggle to return the public finances to a sustainable position.”
Greece to Reduce Public Sector Debt by One Third
The Athens government is trying to reduce the public sector deficit by about a third to 8.7% of GDP but high borrowing costs and an economic contraction of 2% may make achieving that goal difficult. Greek Finance Minister George Papaconstantinou said that Greece will not ask for outside aid and will stay with its plan of market based funding. Papaconstantinou told the Greek Parliament, “We are sticking to our target and I believe we will continue to borrow from markets smoothly, as we did today with the T-bills. The Greek government has not asked for the mechanism to be activated, although it remains available if needed.”
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Posted on 10 April 2010
Loonie Hit by Canadian Jobs Report
The Canadian dollar which hit parity with its US counterpart last week pulled back after a report that showed that Canadian employers added fewer jobs than had been forecast. The Loonie has gained 4.8% against the greenback so far this year. Despite the loss many believe the loonie is headed for further gains. Samarjit Shankar of Bank of New York Mellon Corp stated, “The Canadian dollar has come a long way since March, and the job number is reason for a pause. You’ll see resistance as you approach parity.” On Friday the Loonie fell as much as 0.6% during the day the largest decrease since March 24. Currently one Canadian dollar fetches 99.42 U.S. cents. Referring to the Canadian jobs report Toronto-based chief economist at Canadian Imperial Bank of Commerce Avery Shenfeld stated, “This is essentially an on-trend report. Had we had a significant retreat in employment, that might have had markets second-guessing the strength of the Canadian economy, but this is within the margin of error in the survey for what the consensus forecast was.” Shenfeld believes the Loonie will strengthen to 98 Canadian cents per U.S. dollar possibly by September. Last month Bank of Canada Governor Mark Carney said he was open to raising rates from 0.25% as soon as June 1st.
Pound Gains on Positive Data
On Friday the pound gained vs. the US dollar and is headed for the second straight week of gains. Producer prices in the UK rose faster than forecast in March adding to the perception that recovery in the UK is gathering momentum. A report by the National Institute of Economic and Social Research showed that GDP had rose0.4% during the first quarter. The Bank of England left rates at historic lows of 0.5%. Harry Adams of Schneider Foreign Exchange said the producer price data “was a nice boost for sterling,” and also said, “The pound may have a good couple of weeks” and may gain to $1.55 next week, should it close above $1.5350 today” In late Friday trading in London the pound gained 0.6% trading at $1.5374.
EU Finance Ministers to Hold Teleconference Sunday
The Greek fiscal crisis continues to pressure the euro and EU finance ministers will hold talks on Sunday to discuss the details of the earlier EU/IMF agreement which established a rescue mechanism for Greece. Also participating in the teleconference will be the European Central Bank and the European Commission. Greece suffered yet another blow last week after Fitch’s ratings agency downgraded Greece to BBB- just above ‘junk’ status and also said further downgrades are possible. Fitch’s outlook for Greece remains negative. Monday may be a pretty exciting day for currency markets!
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Posted on 08 April 2010
Borrowing Costs “Barbaric”
On Thursday markets hammered Greek bonds and banking stocks pushing borrowing costs for the Athens government higher and some speculate that the troubled nation will apply for aid from last month’s EU IMF rescue package. Borrowing costs for Greece have skyrocketed as the premium investors demand for holding Greek debt rose for the third day in a row. Investors remain wary of last month’s loan mechanism created by the EU and the IMF due to a dearth of details about the agreement. Many now believe that the Athens government is left with no alternatives and will have to ask for EU aid. Chris Pryce, senior Greece analyst for rating agency Fitch stated, “Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what they intend to do, when they intend do it and how much would be involved. It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support.” The Greek government has promised to cut its public finance deficit to 8.7% of Gross Domestic Product this year. Some of Greece’s austerity measures have sparked protests, strikes and near riots.
Spread Levels ‘Insane’ Says Greek Official
Greece has repeatedly said it prefers to borrow from markets and will approach the IMF only as a last resort. Greek spokesman George Petalotis stated, “For the time being it is not necessary to activate the aid mechanism. The EU/IMF safety net is there to guarantee that Greece is not alone.” He also called rates demanded by investors as “barbaric.” The 10 year spread between German and Greek bonds widened to almost 463 basis points on Thursday. Two year Greek bond yields rose more than 100 bps to almost 8%. Panagiotis Dimitropoulos of Millennium Bank in Greece stated, “Spread levels today are insane, they are not levels for a euro zone country. It seems Greece is being pushed toward the aid mechanism.” Standard & Poor’s said that Greece is at risk of a downgrade if high borrowing costs continue.
Trichet Says EU IMF Agreement is ‘Workable’
European Central Bank President Jean Claude Trichet said that Greece is in no danger of defaulting. Trichet insisted that the support mechanism devised at last month’s EU summit is “workable” and “a very, very serious commitment” by EU members. Trichet told reporters, “I would say that taking all the information I have, that default is not an issue for Greece.”
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Posted on 30 March 2010
Greek Bond Sale Falls Short of Expectations
The US dollar gained on the troubled euro for the first time in 3 days after Greece’s bond sale fell short of expectations. The euro fell after the Greek bond sale prompted demand for less than half of the debt offered. The euro and dollar also fell against commodity linked currencies as oil and commodity prices rose. Sacha Tihanyi of Bank of Nova Scotia stated, “The euro is obviously still suffering. Canada is an excellent country from the sovereign-risk perspective, and Australia is very good as well.” Details of the EU IMF agreement remain unclear prompting investor concern. The greenback gained 0.6% on the euro trading at $1.3409 in morning New York trading. The dollar gained 0.4% on the yen trading at 92.80. Amazingly enough, the pound was the best performer and gained 0.7% vs. the dollar and last traded at $1.5101 after hitting a high of $1.5127. The euro hit a two month high against the yen but pared early gains as lingering concerns about Greece’s fiscal health linger.
Euro Zone Debt and ECB Rates Cause Concern
Analysts see limited euro gains due to euro zone debt problems and the perception that the ECB will not raise rates anytime soon. Daragh Maher of Credit Agricole CIB in London stated, “The uncertainties surrounding Greece and wider fiscal issue are still a problem.” The euro has gained about 1.5% against the dollar since last Friday when EU leaders announced a rescue plan for Greece. Commodity linked currencies gained as a rise in commodity prices boosted demand for the Aussie, Kiwi and Canadian dollars. The New Zealand dollar hit its highest vs. the greenback in a week after a government report showed that home building rose in February for the first time in three months. Imre Speizer of Westpac Banking Corp stated, “The sentiment around commodity currencies is more bullish this week and the data in both Australia and New Zealand is tracking pretty well.” The Aussie gained 0.2% vs. the greenback trading at 91.92 U.S. cents. The Kiwi remained at 70.98 U.S. cents. So far this month the Aussie has gained 1.6% vs. the greenback and the Aussie has gained 2.6%.
Pound Gains for Third Straight Day
The pound gained for the third straight day against the US dollar as reports showed that the UK’s GDP showed better than expected growth. The pound has been pressured by political concerns as investors remain concerned that election results could result in political gridlock crippling the nation’s ability to deal with an 11.8% budget deficit. In London the pound gained 0.7% vs. the dollar trading at $1.5092.
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Posted on 25 March 2010
Euro Trading Volatile
Once again the beleaguered euro hit a 10 month low against the US dollar paring earlier gains in currency markets. Trading remain volatile in advance of today’s EU summit in Brussels, Greece’s ongoing debt crisis and Wednesday’s downgrade of Portugal’s rating by Fitch’s rating agency dragged the euro down in trading sessions. In Asian trading the euro hit an all time low vs. the Swiss franc as disagreements among EU nations on how to solve Greece’s massive debt problems prompted Asian hedge funds to dump the euro. Currency experts believe the euro will continue its decline throughout the week due to disagreement among EU leaders which is making investors nervous. The euro pared earlier losses after a spokesman for the Athens government said that a French-German plan to aid Greece “sends a message of stability.”
IMF Aid Would Be Negative For Euro
Earlier the euro fell after European Central Bank President Jean-Claude Trichet said that the EU needs to take responsibility for other EU states and that International Monetary Fund aid to Greece is “very, very bad.” Camilla Sutton of Bank of Nova Scotia stated, “Trichet said that turning to the IMF would be very difficult. The implication is that an IMF aid package would be negative for the currency. His comments highlight the ongoing uncertainty in the EU, and it’s the uncertainty that’s impacting the market.”
Contingency Plan Developed by France and Germany
The contingency plan developed by France and Germany “satisfies” the Athens government said Greek spokesman George Petalotis. He also said the plan “covers us fully” and EU leaders are expected to discuss the plan tonight. Investors and currency experts remain cautious. Omer Esiner, of Travelex Global Business Payments said, “The market sees a high level of uncertainty until we get details on a plan to bail out Greece, and we’re seeing the euro fall as a result of that. The involvement of the IMF is somewhat of a negative for the euro.” European Union executive and Spanish Prime Minister Jose Luis Rodriguez Zapatero told reporters in Brussels that “We need confidence in the European currency.” European Commission President Jose Manuel Barroso echoed Zapatero’s statement. Barroso also said that he supports the ECB decision to loosen finding and collateral rules. Barroso told reporters, “As you know, according to the (EU) treaties the ECB is fully independent so it was a decision taken by the ECB but it has my full support and the full support of the Commission.” Until the EU agrees on a solution for Greece’s debt woes the euro is likely to remain under intense pressure.
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Posted on 23 March 2010
No EU Solution Expected
The euro once again fell vs. the US dollar and most analysts believe that EU members will not be able to agree on any kind of aid package for Greece during this week’s EU summit. Concerns about Greece’s ability to repay its debts are keeping the euro low in currency markets and are also supporting safe haven dollar buying. The euro was pressured further when it hit an all time low against the Swiss franc. EU leaders have strong disagreements on how to provide aid to the Athens government. German Chancellor Angela Merkel faces fierce public opposition to any Greek bailout and said there will be no decision on aid to Greece at the upcoming EU summit. Failure to resolve Greece’s debt woes combined with stalled euro zone recovery could cause the European Central Bank to postpone raising rates further pressuring the multi nation currency. Joe Manimbo of Travelex Global Business Payments stated, “The risk is for further weakness in the euro if nothing concrete comes out of this summit in terms of financial help to Greece.”
High Borrowing Costs Hurting Greece
Greek Finance Minister George Papaconstantinou has said that the Athens government wants and EU based solution for the nation’s debt crisis and said that high borrowing costs are hampering Greece’s ability to achieve its budget cutting goals. Adding to concerns European Central Bank vice-president nominee Vitor Constancio said that IMF loans may not be adequate to meet Greece’s needs. Ian Stannard of BNP Paribas said, “It is looking increasingly unlikely that there will be an EU aid package for Greece which leaves the euro in a negative position. I expect a test of this year’s low at $1.3435, and if that breaks, a quick move toward $1.3100.” Eurogroup head Jean Claude Junker said he would welcome a meeting of EU leaders in advance of Thursday’s EU summit to discuss Greece’s fiscal problems. Spokesman Guy Schuller stated, “It’s the first time that I hear about such a meeting. Mr. Juncker is part of those member states that favours that (meeting) but thinks it should not be institutionalised.”
France and Germany Hold Talks
Recent news reports say that France and Germany are holding talks designed to devise a joint position on Greece for Thursday’s EU summit. The report states that so far there has been no breakthrough but the talks included a discussion of the possibility of IMF aid for Greece. Germany has recently released some very tough terms for the nation’s support for an EU solution to Greece’s fiscal problems.
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Posted on 20 March 2010
EU Summit to Take Place Next Week
Investors are waiting for the Upcoming EU summit next week and will be looking for signs that could signal the establishment of an EU based lending mechanism that would aid Greece’s troubled economy. Greece’s debt crisis has weighed heavily on the euro since 2009 and is causing a political rift in the Euro zone. Greek Prime Minister George Papandreou has indicated that Greece may seek aid from the International Monetary Fund if EU aid is not forthcoming. Michael Woolfolk of BNY Mellon in New York stated, “The tensions surrounding Greece are escalating. This whole IMF situation has become a game of brinkmanship and the whole uncertainty is undermining the euro.” . French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet have warned that the EU may lose credibility unless European leaders agree on a lending solution for Greece. In Germany Chancellor Angela Merkel’s government is adamantly opposed to EU aid for Greece. Merkel told the German Parliament on March 17th that the IMF may be the sole solution to Greece’s debt crisis. Nobel Prize winning economist and Columbia University professor Robert Mundell said that the IMF should be a “lender of last resort” for Greece.
Papandreou Says Greece Will Not Default
Greek Prime Minister Papandreou has said that under no circumstanced will Greece default. Papandreou stated, “Let everyone be certain, Greece will not default, we will not let it default. Greece has a strong government and courageous people. We are returning to the road of economic stability.” Papandreou also warned that speculators are pushing up borrowing costs for the troubled nation and is seeking regulations to curb speculation. Papandreou said, “We are building alliances in and outside the EU. We are convincing our partners for changes to set limits to speculators. We are not asking anyone to pay our debts. We will do this by ourselves. We want to be able to implement all that we have announced and enacted calmly.” Experts predict that Greece’s debt to GDP ratio may hit 120% this year.
Kiwi Best Performer
In a rare piece of good news the Kiwi dollar hit its largest weekly gain on the Aussie dollar. According to Bloomberg the Kiwi has been the best performer last week against most major currencies. A report due next week is expected to show that New Zealand’s economy grew at its fastest pace in two years. Most experts believe that the Bank of New Zealand will raise rates sometime in June. Richard Grace of Commonwealth Bank of Australia. Stated, “Participants are starting to figure that, look, the Bank of New Zealand will raise interest rates in the middle of June according to their current policy guidance. This is why the New Zealand dollar is regaining some strength, because it was severely underperforming as the New Zealand economy went through a soft patch.”
Quick Forex Tip: The International Currency Trading market has no central exchange like stock and commodities markets. Currency markets are dispersed throughout the world and the primary trading centers are, in order of importance, London, New York and Tokyo. The geographic dispersal means that markets are always open somewhere in the world and traders can jump on the internet and hopefully make very profitable trades at any time of the day.
Posted on 16 March 2010
Low Fed Rates Pressure Greenback
The US dollar fell against the euro and yen after the Federal Reserve sang the same old song of keeping rates ‘exceptionally low’ for an ‘extended period.’ Only one Fed chief dissented, Kansas City Fed President Thomas Hoenig was the lone vote against current policies. Currency expert Kathy Lien of GFT in New York stated, “Going into the Fed meeting, traders were looking for two things: the inclusion of ‘extended period’ and the number of dissenters. Once forex traders saw the words reappear in the statement and saw that Hoenig was the only dissenter, they bailed out of dollars, “The euro gained 0.7% and last traded at $1.3777. The euro started to gain in early trading after EU finance ministers supported plans to aid Greece if warranted. Standard & Poor’s ended its review of a possible Greek downgrade
Fed Less Than Upbeat About US Economy
The Fed was less than upbeat about recent US housing and employment figures which put the dollar under pressure in currency markets. A recent rise in risk sentiment has also pushed the dollar down. Greg Salvaggio of Tempus Consulting said, “I don’t think the market expected them to say housing is still at depressed levels and employers are still reluctant to add to payrolls. We’re not expecting the euro to break out of its $1.35-$1.38 range on the back of this.”
Obama Under Pressure to Adopt Tough Stance on China’s Currency Policies
The Obama administration is facing increased congressional pressure to adopt a tough stance with China regarding its currency policies. On Monday Chinese Premier Wen Jiabao denied China is undervaluing its currency to gain unfair trade advantages. In a letter to U.S. Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke 130 US legislators said, “The impact of China’s currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors.” Some currency experts called the move counterproductive. Nick Bennenbroek of Wells Fargo stated, “When China gets international pressure to adjust its currency policy, it seems to resist that pressure. It doesn’t like to be pushed around.” Several economists believe China’s currency is undervalued by as much as 40% giving the industrial giant a large trade advantage. Chinese Premier Wen Jiabao dismissed the complaints and also blamed Washington for the deterioration of relations between the two countries citing the recent meeting of Obama and the Dalai Lama. Democratic Representative Michael Michaud stated, “If the administration fails to act on this issue it will hold back our economic recovery and hurt the ability of American small businesses and manufacturers to increase their production, keep their doors open, and create jobs.”
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Posted on 10 March 2010
Experts Predict Dollar Gains
A recent Bloomberg Professional Global Confidence Index showed that most experts believe the US dollar will gain during the next six months and expect the US economy to expand at a faster pace than European and Asian economies. Most economists expect the US Federal Reserve to raise rates before the European Central Bank or the Bank of Japan. The Greek fiscal crisis has also strengthened dollar confidence and most economists expect Greece’s debt woes to continue to undermine the euro. Meg Browne of Brown Brothers Harriman & Co said that, “Growth differentials and interest-rate differentials, and the fact that the U.S. is so far doing quite well compared with the euro-zone” have helped the dollar in currency markets. German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker said that credit- default swaps need to be regulated to shore up the multi nation currency and prevent a repeat of the Greek debt crisis. Shaun Osborne of Toronto-Dominion Bank stated, “The Greece situation was definitely something that helped the dollar recover. It started to take on a life of its own. Now the markets are waiting to see where we go from here.”
Greece Not Asking for Bailout says Prime Minister
Greece’s budget deficit is now at 12.7% of GDP which is four times what EU rules allow. Last week Prime Minister George Papandreou’s government announced measures designed to save 4.8 billion euros ($6.5 billion USD) and includes higher sales, fuel and tobacco taxes as the government struggles to shave 4 percentage to bring the deficit within EU limits. Greek Prime Minister George Papandreou said that US President Obama is supportive of Greek austerity measures. Papandreou also said after a meeting at the White House that he got a “positive response” from Obama about European efforts to limit market speculation. Papandreou said to reporters, “We’re not asking for a bailout, we’re not asking for financial help from anyone. What we are doing is first of all revamping our own economy. We are taking measures to put our economy on the right path.” US president Obama offered no statement after the meeting.
EU May Prohibit Speculative Credit Default Swaps
European Commission President Jose Barroso said that the EU may consider prohibiting “purely speculative” credit default swaps and German Chancellor Angela Merkel called for a halt to derivatives trading to prevent a repeat of the Greek debt crisis. In a speech two days ago Papandreou warned that the debt crisis in Greece also posed risks for the US as well as the EU. A White House spokesman said that the Obama administration believes that the EU should take the lead in addressing the Greek crisis. Administration spokesman Robert Gibbs stated, “This is an issue for the European Union. We believe they have and possess the capabilities to solve that.”
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Posted on 28 February 2010
Rogoff Predicts “A Bunch Of Sovereign Defaults”
The euro has been pressured by the Greek debt crisis since late last year. In December 2009 Greece suffered two downgrades by Moody’s and Fitch rating agencies. The Greek fiscal crisis has dragged the euro down in currency markets and many investors fear a default by the troubled EU member. Earlier in the month Harvard University Professor Kenneth Rogoff, a former economist for the International Monetary Fund, said that out of control debt may force several countries to default and could force the US to cut spending. It was Rogoff who predicted the failure of several large American banks in 2008. At a forum in Tokyo Rogoff said that following a banking crisis, “we usually see a bunch of sovereign defaults, say in a few years. I predict we will again.” Rogoff said that the United States is likely to tighten monetary policies which would in turn send “shockwaves” through markets. Rogoff also said that US fiscal policy will not be addressed until rising bond yields prompt “very painful” spending cuts and tax increases. At present the US faces an unheard of budget deficit of $1.6 trillion dollars this year.
Rogoff Pessimistic About Europe
Rogoff, who co wrote a history of the current financial crisis in 2009, told the Tokyo forum, “Most countries have reached a point where it would be much wiser to phase out fiscal stimulus. Rogoff said nations would be wise to, “to keep monetary policy soft and start gradually tightening fiscal policy even if it meant some inflation.” Rogoff said that Greece will probably be bailed out by the IMF and not the European Union. Rogoff believes that Greece will develop several austerity measures and that the EU will probably provide Greece with a bridge loan which will not save Greece in the long run. Rogoff stated, “It’s like two people getting married and saying therefore they’re living happily ever after. I don’t think Europe’s going to succeed.”
Rogoff Predicted 2008 Crisis
Rogoff believes that investors will demand higher rates to lend to debtor nations including the United States. According to last November’s IMF forecast the US’s borrowing will amount to 99.5% of annual economic output in 2011.Rogoff said that global recovery and growth will be slow. Rogoff said, “In rich countries — Germany, the United States and maybe Japan — we are going to see slow growth. They will tighten their belts when the problem hits with interest rates.” Rogoff has a reputation for accurate predictions. In 2008 just before the collapse of Lehman Brothers Rogoff warned, “the worst is yet to come in the U.S.” and also predicted the collapse of major investment banks. Rogoff’s assessment of the global financial situation is sobering.
Quick Forex Tip: Education is very important for anyone interested in forex online currency trading. Many factors influence currency exchange rates including economic reports, political conditions, and market psychology. Fortunately there are many excellent training programs available for free on the internet to help novice traders gain a thorough understanding of forex markets and the fantastic opportunities they provide investors.
