Greece Remains the Focus on Monday’s Asia-Pacific Session

Greece continues to be all the talk during Monday’s Asia-Pacific session with rumours of a massive bailout package giving equities a bit of a boost.

According to German newspaper Der Spiegel on Sunday, the euro zone nations are considering a €20 to €25 billion aid package to Greece.

According to the article the share is calculated according to the proportion of capital which each European nation holds at the European Central Bank, said the magazine, citing talks held when the body first began considering aid for Greece.

Allegedly, German officials have declined to comment on the report.

Meanwhile, in an interview with Welt-am-Sonntag Greek Finance Minister George Papaconstantinou said the euro’s problems extend beyond Greece’s budget concerns with the financial markets are betting on another euro zone nation to experience similar problems, deepening the problems in the region.

Indeed speculation over the concerns in Greece have been responsible for the weakness we’ve seen in European bonds this week, and this sentiment has continued despite assurances from the European Community that Greece will not default on its debts. The current concern is that another euro zone nation will announce similar problems to Greece, a development which would likely weigh further on the euro even if much of it has been priced into the markets already. Should the euro zone successfully and credibly defend itself from this speculation down the road, expect the euro to rally.

Finally, speaking in an interview with BBC news, Greek Prime Minister George Papandreou said the nation does not want financial aid from the European Union, just time and political support.

As stated in the past, a bailout of Greece is not likely to be of much help to the euro whose credibility had already been damaged by the willingness of the euro zone nations to bailout the Greeks in the first place. That being said, if the euro zone can credibly convince the markets that no other country in the union will suffer the same fate as Greece, the euro should make a comeback.

EUR/USD last traded higher by 24 pips at 1.3637 after trading in a range of 1.3602 to 1.3648 so far today.
Short term support lies at 1.3444, followed by 1.3424 and 1.2886 with resistance at 1.3647, 1.3788, and 1.3801.

Poor Data and News Deepens Sterling’s Declines

Although all currencies have been under pressure after Thursday’s surprising 25 bps hike in the discount window to 0.75%, the pound sterling is taking is harder than others on the back of a poor retail sales report and more concerns over the country’s fiscal position.

UK retail sales excluding fuel fell 1.2% month-over-month in January despite calls for a smaller 0.5% pullback and the prior 0.5% gain, and annual sales rose 2.6%, beating forecasts for a 1.1% pickup, but slower than December’s 2.9% gain.

GBP/USD lost 37 pips on the announcement, although the losses were short lived, and were quickly recovered.

Meanwhile, after 20 influential economists attacked the UK government for failing to cut spending last week, 67 economists including two Nobel Prize winners have backed the Prime Minister, arguing that it is too early to withdraw stimulus.

In articles in the Financial Times, both Joseph Stiglitz and Robert Solow have argued that a move geared at reducing the UK’s budget deficit will stifle the embers of economic recovery in the island-nation, agreeing with the assessment from the Chancellor of the Exchequer, Alistair Darling.

The comments add to the woes of the pound sterling which has been under pressure in part because of its deteriorating budget position.

GBP/USD last traded lower by 132 pips at 1.5397, after trading in a range of 1.5357 to 1.5542 today. Short term resistance lies at 1.5816 with support at 1.5296.

EUR/GBP last traded higher by 651 pips at 0.87773 after trading between 0.87033 to 0.87913 today. Short term resistance lies at 0.87481 with support at 0.86580.

Sterling Under Pressure After Poor Data & Downbeat Comments From BOE Member

The pound sterling has been under pressure throughout the morning on Thursday after a poor public finances report and downbeat comments from a Bank of England Monetary Policy Board Member.

UK’s public finances fell £11.8 billion in January, less than calls for a £20.0 billion pullback and reversing a £16.3 billion gain in December.

Public sector net borrowing rose £4.3 billion despite forecasts for a £2.6 billion slide and prior £14.0 billion increase.

The news sparked a 47 pips sell off in GBP/USD to 1.5577.

Also weighing on the pound were comments from Bank of England Board Member Kate Barker in an interview Newsletter on Thursday morning, saying that the country’s economic recovery is “quite hesitant”, and that it is possible for the UK to experience another quarter of contraction.

The comments illustrate the difficulties which the country has been facing in recent months and are consequently adding to the woes of the British currency on Thursday.

The GBP/USD last traded lower by 73 pips at 1.5599 after trading in a range of 1.5575 to 1.5688 today. Short term resistance lies at 1.5816 with support at 1.5560.

Meanwhile, EUR/GBP is up 257 pips at 0.87073 after trading in a range of 0.86644 to 0.87170 today. Short term resistance lies at 0.87459 with support at 0.86580.

Sterling Takes Back Some Losses After Poor Employment Report and Dovish BOE Minutes

Sterling is recovering earlier losses after a dismal employment report and dovish minutes from the Bank of England sent the currency plummeting earlier on Wednesday morning.

UK jobless claims unexpectedly rose by 23.5k in December despite calls for a 10.0k decline and prior 9.6k pullback the month prior.

The claimant count rate was unchanged at 5.0%, as expected, as was the ILO unemployment rate at 7.8%.

Meanwhile minutes suggest that the BOE vote to leave monetary policy unchanged on Feb. 4 was unanimous, but that for some members, the decision was “finely balanced”.

Nevertheless most members agreed that the February data did not suggest that inflation would undershoot over the coming months, and consequently, that additional monetary stimulus was not necessary for the time being.

Already under pressure ahead of the releases, sterling declined an additional 24 pips on the news, touching off 1.5738 before declining global risk aversion helped recover to the current 1.5790 level.

So far today, the pair has traded in a range of 1.5738 to 1.5816. Short term resistance lies at 1.5892 with support at 1.5560.

Meanwhile, the reports sent EUR/GBP higher by 134 pips to 0.87411 before quickly retracing lower to 0.86993.

So far today, EUR/GBP has traded in a range of 0.8704 to 0.87411 today. Short term resistance lies at 0.88416 with support at 0.86580.

Sterling Pops Despite In Line CPI

Sterling popped modestly higher on the back of some relatively in line inflation data earlier this morning, which prompted verbal action from the head of the Bank of England, as well as the Chancellor of the Exchequer.

According to the ONS, UK CPI fell 0.2% month-over-month in January, further than calls for a 0.1% decline and reversing a 0.6% contraction in December. Annual CPI was up 3.5%, in line with expectations and faster than the prior 2.9% pickup.

As usual, the results have prompted the central bank government to write a letter to the Chancellor of the Exchequer explaining why inflation was above the 3.0% threshold, however, this was also expected by the markets.

In the letter, BOE Governor Mervyn King said the jump in inflation is expected to disappear as slack in the economy brings down prices.

The comments are in line with warnings from the Bank of England which predicted a temporary spike in inflation in the region.

Responding King's letter, UK Chancellor Alistair Darling said he agrees that inflation in the UK will decline, and that the central bank's economic outlook remains consistent with that of the Federal government.

Although in theory the data was priced into the markets, GBP/USD nevertheless added 18 pips to 1.5707 before retracing the moves.

So far today, the pair had traded in a range of 1.5654 to 1.5730. Short term resistance lies at 1.5765 with support at 1.5560. With this morning's CPI report in line, the gains in the pound are also being driven by a decline in risk aversion worldwide.

Sterling Under Pressure As Debt Concerns Grow

Sterling Under Pressure As Debt Concerns Grow

The pound sterling is under some pressure at the start of the week, following concerns from some key economists over the government's debt reduction programs, along with another ripple of concerns from Dubai World.


In a letter addressed to the Sunday Times on Monday, 20 influential UK economists including some of the BOE's Monetary Policy Board said the UK's debt reduction program lacks urgency and that the country should attempt to eliminate the country's deficit within five years.

However, government officials continue to press the fact that the time is not yet right to withdraw some of the simulative policies adopted to fight the financial crisis.

Responding to the letter in an interview with BBC Radio 4, UK Chancellor of the Exchequer Alistair Darling says he disagrees with the needs to cut the deficit more quickly for fear of snuffing out the beginnings of an economic recovery in the region.

The implications for FX are mixed. Essentially, faster budget cuts in the UK would in theory help the currency's credibility and strengthen the pound, particularly in the short term.

That being said, if Darling is correct that cutting the deficit could send the UK into another recession, the longer term prospects on the pound could be weakened.

Also weighing on the pound is a report that investors of Dubai World could face losses after all. Earlier on Monday, sources told Dow Jones Newswires that Dubai is looking at a plan to repay lenders 60% of investments over the next seven years.

Although the government has publicly denied the report, the comments are said to be weighing on sterling given the exposure of the British Banks to the Middle East.

Nevertheless, the moves have not been very drastic, and the pound was only lower by 38 pips at 1.5662 shortly after the North American markets would have opened if not for public holidays in the U.S. and Canada.

So far, the pair has traded in a range of 1.5613 to 1.5692. Short term resistance lies at 1.5765 with support at 1.5613.

Meanwhile, EUR/GBP is down 40 pips at 0.86761 after trading in a range of 0.86707 to 0.87029 today. Short term resistance lies at 0.88416 with support at 0.86580.

Euro Under Fire After PBOC Rate Hike & Poor GDP Data

The euro is under pressure on Friday after some downbeat GDP reports from the euro zone, coupled with a hike in the People’s Bank of China’s reserve ratio this morning.

German preliminary Q4 GDP came in flat on the quarter despite calls for a 0.2% pickup and prior 0.7% gain, while annual growth was down 2.4%, faster than forecasts for a 2.2% slide, but slower than Q3’s 4.8% contraction.

On the flip side, French Q4 preliminary GDP rose 0.6% quarter-over-quarter in Q4, faster than forecasts for a 0.5% pickup and the previous revised 0.2% gain, but annual growth was down 0.3%, in line with expectations and slower than Q3’s 2.3% slide.

Finally, euro zone preliminary Q4 GDP rose 0.1% quarter-over-quarter, slower than calls for a 0.3% pickup and prior 0.4% gain, and annual growth was down 2.1%, faster than expectations for a 1.9% decline and prior 4.0% pullback.

Adding to the downside for the European currency was an unexpected hike in the Chinese reserve ratio. Effective February 25, the minimum reserve requirement will be 50 basis points higher at 16.5% for large banks and 14.5% for smaller financial institutions.

The news came as a shock to the markets which saw a smaller than expected CPI gain earlier this week.

According to the local Xinhua news agency on Friday, the PBOC says the move is not a shift in monetary policy pledging to continue maintaining its moderately loose monetary policy.

The report also says that today hike in the reserve requirement is geared at absorbing some of the excess liquidity in the country’s financial system.

In the immediate aftermath of the announcement form the PBOC, EUR/USD plunged 48 pips to 1.3567. The pair last traded lower by 98 pips at 1.3595 after trading in a range of 1.3532 to 1.3695.

Support lies at 1.3631 followed by 1.3421. Resistance comes in at 1.3698 followed by 1.3802.

Accord Reached Over Greek Bailout Package

Accord Reached Over Greek Bailout Package

An accord over a financial assistance package for Greece has been reached, according to European Commission President Jose Manuel Barosso, exiting from meetings this morning.

He nevertheless declined to detail the program to help the beleaguered nation, adding that the official announcement will come later in the day.

In the aftermath of the news, European Union President Herman Van Rompuy said that the EC will closely monitor the implementation of the Greece debt reduction plan, along with regular consultations from the European Central Bank and the IMF.

This morning’s EU Summit began several hours late after top euro area leaders insist on holding talks ahead of the meeting. The unveiling of a comprehensive assistance package to Greece is expected later today, at an 11 a.m. EST press conference.

Market participants expect leaders to take this opportunity to lay out an assistance package for Greek and other heavily indebted euro zone nations.

On a side note, German Vice-Chancellor Westerwelle said that the Greek assistance package was a certainty. He added that German taxpayers will not provide the country with a blank check.

Also, in an interview with Bloomberg News, Austrian government spokesperson Szemeliker said that an IMF assistance package is one of the options being considered for Greece although a final decision has not yet been made.

While it appears likely that an assistance plan will help the euro against major currencies in the short run, the long term repercussions on the currency are dire. Indeed a bailout of a euro zone nation constitutes a moral hazard to the European currency, and this stigma will likely take decades to erase.

The announcement from Barosso sent the euro higher by 28 pips to 1.3752 before heading back below pre-announcement levels. So far today, the cross has traded in a range of 1.3708 to 1.3801. Support lies at 1.3676 followed by 1.3586. Key resistance comes in at 1.3812 followed by 1.40.

Sterling Under Pressure Over Dovish BOE Talk

Sterling Under Pressure Over Dovish BOE Talk

Sterling is under pressure following some dovish comments from the UK’s central bank on Wednesday morning.

Earlier in the day the Bank of England’s Quarterly Inflation Report cut the central bank’s 2011 GDP forecasts to a 3.2% growth rate from a 4.0% level previously, but said that inflation will peak at 3.3% in Q1 2010 before slowing to 0.9% in Q1 2011.

Indeed, inflation control is at the core of the Bank of England’s mandate, charged with delivering inflation at or near 2.0% year-over-year. Consequently, as long as low inflation indeed prevails in the UK, it means that interest rates can remain low for some time, and the BOE will be able to maintain accommodative monetary policies. This in theory is negative for the pound.

Adding to the downside were comments from Bank of England Governor King who told lawmakers in London that it remains “far too soon” to conclude that the central bank will no longer need to buy government bonds, and that there is no good reason for the country to lose its AAA credit rating.

While the comment over the credit rating is a positive for the pound, any hint that the central bank could increase its bond purchases is extremely dovish or the markets, particularly given that expectations are for no more quantitative easing to enter the UK.

On the flip side, the pound has largely ignored some very upbeat economic data out of the UK earlier this morning.

UK industrial production rose 0.5% month-over-month in December, above calls for a 0.2% increase and prior 0.4% gain, while annual production was down 3.6%, slower than forecasts for a 4.1% pullback and prior 5.7% slide.

Meanwhile, UK manufacturing production rose 0.9% month-over-month in December, faster than expectations for a 0.3% pickup and prior 0.2% gain, and annual production fell 1.9%, slower than forecasts for a 3.0% pullback and prior 4.9% decline.

Market reaction to the data was negligible, with the pound now lower by 80 pips at 1.5639 USD on the day after trading in a range of 1.5632 to 1.5765. Support is at the top of the old range at 1.5632 followed by 1.5552. Resistance is at 1.5800.

PIMCO Says German Bunds More Attractive Than T-Notes

The euro continues to remain weaker against the USD despite the view that German Bonds may be a better buy than U.S. Treasuries.

In an interview with the Wall Street Journal on Monday, the head of the world’s largest bond holding company said “"Our favorite sovereign debt right now is some of the emerging economies that have suffered due to contagion, which we think will be reversed... And in the advanced economies, Germany, which we think has the best set of conditions of all the advanced economies when it comes to sovereign debt," he added.”

If true, should put upward pressure on the European currency against the USD, which has been clawing back losses against the U.S. dollar throughout the morning trading session.

The comments coincide with those of European Central Banker Ewald Nowotny telling with Wiener Zeitung on Monday that European bonds are experiencing a “speculative exaggeration” of risks, and were consequently artificially undervalued due to the fallout from Greece’s debt troubles.

On Friday, EUR/USD traded in a range of 1.3586 to 1.3746, and has traded in a range of 1.3622 to 1.3717 so far today. Support lies at 1.3619 followed by 1.3586. Resistance comes in at 1.3739 followed by 1.3755 and 1.40.

EURO

The euro gained after the European Commission endorsed Greece's plan to bring its deficit to below 3% of GDP by 2012 from 12.7% at the moment. Greek credit spreads tightened as the risk of default was pared back. At the same time, there were reports of euro buying from Korea's central bank and that also boosted EUR.

EU Wants Tough Measures From Greece

The European Union will publish a plan for Greece this week, according to Greek newspaper Ta Nea, under the headline "Urgent measures to be taken by May 15, 2010". The package includes demands to "cut average nominal wages, including in central government, local governments, state agencies and other public institutions". It also suggests new taxes on luxury goods and proposals to speed up tax payments by the self-employed. The recommendations are due to be made public on Feb. 3, according to the report. The Greek finance ministry said in a statement the measures outlined in the report were already included in its own deficit-cutting program.