Weekly review ………Deal or no deal, Greeks saga continues

Before we chew over events of last week this weekend is supposed once again to provide the final touches and agreement for Greece to get its next €130 billon ( although maybe €150 billion) bail out . According to press reports no such agreement has been made yet. The sticking point being the Greeks refusal to accept more budget cuts ( health and defence) but more importantly agreement on private sector wage cuts including a cut in the minimum wage. It seems the only agreement is that both sides feel they have done enough. The Greeks on austerity and the troika, but principally the Germans and other AAA countries who refuse to part with more taxpayers money unless the Greeks do more. I get the feeling that either way its not going to be a happy ending but that’s not to say markets still wont take a lift if and when an agreement is reached.
Generally risk markets ( bonds and equities) improved last week. Firstly in the euro zone bond markets in Italy and Spain have improved.Secondly the economic data has been either ok or as in the US on Friday,the January employment data much better. The US added 243,000 jobs ( expected 145,000) and headline unemployment was 8.3 % ( expected 8.5%). The upshot was equities edged up again adding between 1 and 2 % on Friday.
Things have not been so clear in forex markets although the Australian and Kiwi dollars were at the top of the pile. The US dollar was a smidge easier but the Euro did very little once again snuggling up to 1.3150. It seems that we need something extra or get us to EUR/USD 1.33 or 1.26, which brings us back to deal or no deal.
You would think that the likely conclusion will be a reluctant climb down from Greece but even that is not a certainty.
Purchasing Manager data now widely watched by markets was a little better in Europe although the gap between the still deteriorating Southern Med countries and the off the worst declining level Northern Europeans, still persists.In the US it was better still.
Latest information from the currency futures exchange still points to a hefty short in EUR/USD which bares consideration as it could yet point to a bigger squeeze on shorts. Fundamentally though little has changed and therefore still leaves the Euro vulnerable.The uncertainty persists and while equity markets are leading us to believe its all going to be ok, investors would be wise to keep an eye on the exit. Chinese data has thus far been in the ok camp but could yet rattle markets if it slides. The same could also be said of some geopolitical event.

Headlines

• US…. unemployment falls to 8.3% ( expected 8.5%)
• US ….adds 243,000 jobs in January ( expected 145,000)
• US…. ISM non manufacturing PMI 56.8, highest since Feb 20011
• Switzerland….. Central bank states 1.20 Euro peg is a minimum. EUR/CHF up 20 pips at 1.2070. Any ideas of raising the peg look fanciful.
• QE… The debate on quantative easing continues. Its likelihood at some stage remains a slight negative still on US dollar sentiment
• Central banks…. Talking of QE the ECBs balance sheet now (in US dollar terms) is 3.5 trillion against the Feds 2.9 trillion with lots more expansion likely at the next long term auction at the end of February.
• Currencies.. Mixed, Australian $ hit all time high against the Euro while the Japanese Yen weakened against all on intervention fears.

It appears that talk of Mr Berlusconi disappearing from politics may be premature if his own opinion of his popularity is anything to go by. He says, I still have strong popular backing, almost twice as much as my colleagues Merkel and Sarkozy,” he said. “In opinion polls, I personally have 36 per cent support. If I walk out in the street I stop the traffic. I am a public danger and I cannot go out to do the shopping!”
That’s probably akin to Russian support for communism, some habits just will not die off.

Friday update.. Forex markets on hold for US NFP and Greek decision

Its as if EUR/USD has found its comfort zone around EUR/USD 1.3150. So why not curl up there and await first the US Non Farm Employment data and then at the weekend , finally an announcement on Greek debt rescheduling.The consensus on the US data is for an increase of 150,000 in January with unchanged unemployment at 8.5 %. Greek talks are going to the wire and the evidence is that Germany has been insistent on new measures of austerity before any more cash is disbursed. Greece has been trying to avoid this knowing failure could push them into default and out of the Euro, something that Euro zone members fear because of the contagion threat. However, Germanys stance is clearly one of knuckle down or leave. They really would be prepared to see Greece go.
Day traders therefore will get their fix after the US numbers and presumably Monday could see a knee jerk move higher for EUR/USD on a Greek agreement at the weekend.I would suggest not much and a sell.
Elsewhere the US currency has looked softer rather than firmer. Equity markets while holding up seem unable to push on at the moment and could be the key to any general dollar move in the short term.
Quantative easing still seems to be the phrase to excite markets. More from the US and the UK at some point? and the ECB ,although markets have not really woken up to the fact that in its own roundabout way that’s exactly what the ECB is doing. The Euro zone banking sector remains a major head ache

Headlines

• China.. Non manufacturing PMI falls to 52.9 ( from 56). For markets to really react we would need to see some purchasing indicators under 50 ( i.e. a declining trend)
• Spain.. Announces bank reform plan. Banks will not get much in the way of tax payers money. Somehow though Spanish banks need an estimated € 50 billon in capital if they are to address their housing market problems full on. More mergers and takeovers.
• Fitch…The ratings agency expect euro zone problems to last another 12 to 18 months. I would be a buyer there.
• ECB buys Portuguese bonds. Adding to their wonderful portfolio.
• Purchasing Managers Index…. The release of euro zone PMI data this morning shows marginal improvements. Germany and France remain above the 50 level Spain and Italy below despite the bounce. And there lies the problem

Snow on the Costa Brava again, second time in 3 years, do we have a new trend.

Wednesday update… Early dollar weakness evaporates as Euro zone problems weigh on currency

Check out what are Greece´s problems in a nutshell

What started well for the Euro finished differently. EUR/USD did indeed make it up to 1.3215 yesterday morning but by late afternoon the Euro was on the skids. It fell down to EUR/USD 1.3062 yesterday and lower to 1.3025 overnight. On crosses to under EUR/GBP 83 some 1 % lower against sterling and back under 100 against the Yen. It may well be a trading range for a while so suggest more sells above 1.32 if we go there. Nothing wrong in adding 100 plus points or more on day trading.I am not sure what triggered all the selling, ,maybe all the talk of US dollar month end selling caught a few longs out.Or maybe someone looked at the fundamentals. Remember those well they are sound economic reasons for a currency move and what’s more here are some.

Unemployment data within the Euro zone continues to show the fundamental problems that lie within the union. German unemployment numbers showed an improvement to a record low of 6.7% from 6.8% while in Italy things went in the opposite direction to 8.9% from 8.7% . Overall eurozone unemployment was at 10.4% .
Whatever the photo shoot shows there remains deep divisions on opinions on what to do with Greece. Germany remains angered at the lack of Greek progress on labour reforms and is balking at the idea of increasing the bailout with Portugal in the queue behind and maybe even Ireland behind them.
Market participants exposure to EUR/USD positions remains the highest and are overwhelmingly short.The strength of the bounce from close to EUR/USD 1.26 reflects this although one assumes that most players are still on board. Fundamentals for the euro zone remain appalling but as we all know from the past it may not reflect in forex moves when we all think. The problem of Greece has now rumbled on for 2 years and the southern Mediterranean block of countries are continuing to diverge from Germany and the strong, as their economies suffer. We have not seen the worst.

Headlines

• Germany. Unemployment falls to lowest level since unification 6.7% in stark contrast to many Euro zone countries. 23.8 million out of work in the euro zone tells you it aint working.
• UK Financial Times … reported speculation that banks may double up at the next ECB 3 year LTRO (Long term refinancing operation) in February. Remember the € 490 billion banks hoovered up in December. This would indicate Euro zone banks on ECB life support as normal funding has dried up. Is his QE? Some say yes.
• US budget office announced that the US deficit shrunk to US$ 1.1 trillion this year. Was that good or bad news, but they can still borrow 10 years under 2%
• US Case Shiller home price index falls 3.7% YOY against 3.3% expected. Knocked equities more than the dollar. There are many hanging the hats on a bottom in the US property market this year. Sentiment would be lifted but nothing to suggest that here.   
• China pmi 50.5 from 50.3. Still expanding

Greece… Its problems in a nutshell
Thank you to Der Spiegel magazine for much of this data

In Athens the government is at least spending € 20 billion less than it was in 2009. Unfortunately its debt situation gets worse as it enters year 5 of its slump
Greek November retail sales were down 11.6% YOY (year on year) which was worse even than Octobers 10.8% YOY decline
When looking at how they might turn themselves around their biggest exports are olive oil , textiles and a few chemicals, hardly the stuff of an economic renaissance.
Add to the fact that Greece is dependant on food imports and you see why life outside the Euro would actually appear so frightening.
Tourism so long a lynch pin of Greece has become a summer industry only ( no one wants to visit their cities in current circumstances) and a recent study of its hotel & tourist industry wages in comparison to competitors shows just why they are in such a state
Per hour wages in tourist industry
Greece € 11.39, Portugal € 8.49, Turkey €4.00 and Bulgaria €1.55.
The problems have developed over years and will not be solved if at all for many years. As I have said before who dreamt up sharing a currency with one of the worlds most efficient and competitive industrial manufacturers, Germany. Plain nuts, but that’s politicians for you.

Weekly review… US Dollar weakness outweighs Euro zone reality for now.

Its not the being wrong that hurts its not understanding why.That is what it feels like seeing EUR/USD back at 1.3220 on Friday. The consolation is that I always felt it was a possibility and I have some ammunition left. The US dollar suffered because the Feds Bernanke chose to call interest rates at zero until 2014 and leave the door open for QE3. This sustained equity markets through the week and put pressure on the currency.and even a slightly disappointing GDP figure from the US ( 2.8% instead of hoped for 3% ) did not upset the trend. What is interesting is that the US Commodity and Futures Trading Commission data showed an increase of Euro shorts of 10% over the week to a record $28.1 billion. So there was no short covering from that crowd which means that a real shakeout is still possible. Or you can take it like me that if we go down we will all go down together, ha ha.
The Greek debt saga has carried on another week when it was supposed to be a whisker away from agreement even 2 weeks ago. Quite possibly an announcement of conclusion next week could give a knee jerk up move for the Euro but that will be a wonderful sell opportunity to my mind. By all accounts the Troika ( EU, ECB and IMF) are still insisting on more action from Greece on reforms and weekend press has speculated that the IMF in particular wish to take the reigns of management totally away from Greece, no autonomy what so ever. Well that will not work and with Portugal waiting in the wings to follow Greece in its downward economic spiral the problems are mounting. Spain’s unemployment data was appalling, up to nearly 23% at 5.3 million and likely to get worse.
In Davos, Switzerland at the world economic forum the Euro zone leaders were subjected to a tirade of negative comment but with little or nothing in the way of new ideas.The EU summit this week is expected to confirm the new fiscal pact and at least some kind of financial help for youth unemployment which is up near 50% in some areas. For sure if something is not done soon then social unrest will follow.
At this point I am not sure where I might panic on my negative EUR/USD view. We could go higher to 1.3400 even but I cannot see beyond that level. In any event I will add to shorts at these levels and more if we go higher.
I believe that Iran’s parliament is due to vote today ( Sunday ) on stopping EU oil exports immediately rather than the EU plan of June. This could definitely be an issue to unsettle risk markets if passed, pushing oil immediately higher and presumably equities lower and the US currency back up. One to watch anyway

Headlines

US.4th Qtr GDPup 2.8% just below 3% expectations
US..FOMC Bernanke signals low US interest rates until 2014 and leaves possibility of more QE
IMF Lagarde.. Says IMF would not risk its reputation by lending money without conditions ( aimed at Greece )
Spain. Unemployment surges more than 350,000 in 4th Qtr. Worse to come I am afraid
Germany.. A growing band of commentators and politicians consider Greek default and Euro zone exit likely. This apparently includes Angela Merkel
EUR/USD hits high of EUR/USD 1.3235. Technical resistance remains at 1.3245/55
UK… Prime minister and chancellor pull no punches in Euro zone criticism and are scathing of Financial transaction tax plans

I leave you with the comments of Nouriel Roubini. Dr Doom as he is known having predicted the financial meltdown of 2008 and a man who I assume is also short EUR/USD

“The eurozone is a slow-motion train wreck,” Mr Roubini said. “Countries – and not just Greece – are insolvent. I think Greece will leave the eurozone in the next 12 months, and Portugal after.”
The New York University professor of economics was speaking at one of the final sessions of the World Economic Forum annual meeting in Davos.

“There is a 50pc chance that the eurozone will break up in the next three to five years. This doesn’t look like a G20 world it looks like a G-Zero world because there is no agreement on global imbalances, how to change the international monetary system, international trade, banking regulation, on all the fundamental issues.”
 

Tuesday update… Euro pushes on despite Greek debt impasse

Despite there being no agreement on the Greek debt rescheduling the Euro put in a pretty good shift yesterday hitting a high of EUR/USD 1.3052. The technical bias is if anything more positive on the pair and as I have said we could yet see an even bigger squeeze. Next major resistance remains around 1.3140/50 level.
Equities and euro zone bond markets remained in positive territory taking support away from the US Dollar and aiding the Euro. This morning sees us closer to 1.30 with equities opening a fraction down and most attention will remain on Greek talks. The private investors have the ball in their court as they consider having to accept a lower coupon ( interest rate) on the new Greek bonds they will receive.What seems a little strange in the course of the Euro revival is that against the Swiss franc it has made no headway at all trading at EUR/CHF 1.2070. This is hardly confirmation of Euro rally but we will have to see.
Talk of expanding the bailout funds has helped the Euro elsewhere with Germany apparently more open to this provided tighter budget rules are firmly in place.
In Italy taxi drivers have been striking and more groups will follow as new liberalisation measures are proposed. This will be a crucial test for the ability of the Monti government to succeed where so many have failed before in major labour reforms.

Headlines

• India Central Bank. Economic growth falling more than anticipated. India has a balancing act as inflation remains very high
• Euro zone Finance Ministers.. Greece off track. Must get on track before new programme. I didn’t know that they had ever been on track. There has been nothing substantial in the way of labour reform or asset sales
• IMF Lagarde still banging the drum wants a bigger Euro bailout fund
• Hints that European bank capital rules might be delayed as German and French banks struggle to meet the new rules

Europe agreed to impose sanctions on Iranian oil imports halting new orders after July. For their part an Iranian spokesman said they might halt European exports immediately which would cause a big spike in oil prices.It seems that with Iranian elections in the Spring we could see more tensions as anti western rhetoric continues.
Undoubtedly though some major incident with Iran has the potential to unsettle many markets not least the recent strength of share markets.

Weekly review….. Euro fight back but jury out on next move as Greek talks stall

It seems the forex market is in a battle ground as far as EUR/USD goes. It is challenging the upper end of its recent channel but could not really manage a decisive break or close above the EUR/USD 1.2950 level. The price action since lasts weeks Standard & Poor’s downgrades has been Euro positive. Euro zone bond markets have been holding up well ( ECB money channelled through the banks mind you), equities have enjoyed a solid start to the New Year and US data at least continues to be supportive for risk.
As I said Friday EUR/USD bears may be tested further if we break higher, up near 1.3300 cannot be ruled out but I would be looking to sell there up to 100%, all in as you might say. There seems to have been good 2 way business from sovereigns but undoubtedly some profit taking from shorts,many of whom will have good profits.
One of the game changers last week was the new IMF initiative to raise more funds. It remains to be seen if the United States back it. There response so far has been pretty cool. Indeed the IMF is courting controversy. Ms Lagarde the French head of the IMF cannot in anyway be seen as a neutral in this. Having been a French minister she seems to be running a crusade to save the Euro, hardly what the IMF mandate is about. She has all the hallmarks of someone who will go on to stand in a French presidential election, presuming she does not self destruct like here predecessor. In any event its all a bit to Europe orientated. Their stance over Greece looks very strange, admitting things are ´dia´ with no real structural reforms and the downward spiral continuing but apparently happy to splash the cash still.
The Monti government in Italy will be unveiling its plans for structural reforms in the Labour market, which is finally to be applauded. The crucial points here are the response of unions. No Italian prime minister has been able to take them on but maybe this time it will be different baring in mind the economic situation. Of course the fruit from any changes will be years away, while the pain is immediate. Unions will want something on the growth side if they agree and its difficult to see what that might be.
Mr Sarkozy must be mighty relieved that the French downgrade has caused no wobble in bond markets and he too is talking of some major labour market reforms as he consults the unions. Brave man ahead of the election maybe, but perhaps it will be a master stroke. For sure the socialists might not look credible if they appose them much as in the UK where the Labour party have been forced to change tack on fiscal policy because of their policies lacked credibility.
So it may be that Euro bears will have to wait.The reality check for sure will be economic data from southern Mediterranean countries. As much as any individual can gauge anything the signs here in Spain point to some very poor economic figures. Starting from unemployment levels of 23% as they go into recession must be unheard of in this day and age

On to Greece where market participants will have been expecting an agreement on its debt swap deal this weekend.Latest reports suggest that representatives from private creditors have taken a time out and that the talks will not resume for a few days. While this may not be anything more sinister than last minute fine tuning of the interest paid and a deal will happen next week it could unsettle markets on Monday.

In currency markets one indicator seems still to be Euro bearish. The EUR/CHF has stayed unmoved under 1.2100 close to the 1.2000 peg and certainly no talk of raising it at the moment. It points to a continuing flow of funds away from European countries into the safety of Switzerland . Portugal which reached its 2012 targets not least by taking funds from its pension pot is thought to be next for a rescheduling quite possible followed by Ireland. And by the way just 2 weeks ago the Irish pm was on TV stating Ireland would not accept a financial transaction tax if the UK was not going too. Just another reason for them to clash with the French.

All this goes to show that despite completing austerity packages rubber stamped by everyone the upshot is failure.If more is prescribed how long before the stoic citizens cry enough. Ratings agency Fitch this week pronounced that a solution to Europe’s problems was technically and politically beyond reach, a conclusion it made after the December summit. That remains the key and as we have seen over the last 2 years the Euro zone problems may seem to come and go but in reality they are not being solved because it is 10 years too late. That the eurozone may be fixed in the next 10 years is going to be too long to wait.

Headlines

• Greece.Latest (Sunday) news points to suspension of talks without agreement. May unsettle markets on Monday but will happen next week.
• EUR/USD remains at crucial level 1.2945 at the top of its recent downtrend channel.
• European banks continue to support their domestic bond markets. All smoke and mirrors but ECB money is finding its way to fund governments
• Italian leader Monti to unveil the first real labour reforms. How will Italian unions react
• US housing data improves ( inventories of unsold homes falls to lowest since 2005)
• US Republican nomination just got interesting.Newt Gingrich wins South Carolina making it a 2 rather than 1 horse race

By the way how is your Iranian riyal position. Since October the US$/RIYAL has fallen to 18,000 from 10,500 . No change in the trend on that one either

Thursday update …Euro lifted on IMF fund raising plans

News that the IMF plan to raise $600 Billion gave the Euro a lift off the lows yesterday taking it up to a high of EUR/USD 1.2880. It is intended to lift the fire power to $ 1 trillion and markets liked it. It seems the Likes of China Brazil India and Oil producing countries will be asked to step up to the plate. However, it remains to be seen with the US apparently not prepared to contribute as they rightly feel that Europe has enough resources to manage on its own. Euro zone bond markets continue to perform a smidge better so all in all the Euro short squeeze could continue.
Greece will edge into the spotlight as negotiations continue. Success seems likely despite the consensus view that it will not be enough and the whole circus will have to start again some time in the future when Greece fails to make progress.
EUR/USD 1.30 seems more likely than not but I still wouldn’t want to get caught long.

Headlines

• IMF targets raising of $600 Billon
• Monti forecasts 5% budget surplus for 2013, provided rates fall. In your dreams Monti
• Greece threatens bond holdouts with new laws. Change the rules if its not going your way
• European banks continue to support local bond markets while ECB still seen buying
• EUR/USD sees good two way orders

Wednesday update..Its all rosy again…………as long as Greece holds on

As equity and peripheral bond markets continued to hold up the Euro edged up and the US dollar slipped a little. EUR/USD stuck its head over 1.2800 briefly this morning but trades back at 1.27400 on news that ratings agency Fitch is pondering a 2 notch downgrade for Italy. As we have said the recent ratings cuts by Moody’s hold more implication for Italy and Spain than France.Later today or tomorrow the discussions on Greek debt will resume. While some are pointing the finger at hedge funds it seems the banks also may not back down. I would expect Greece to buckle and agree higher rates. When you are desperate for cash you sign up for anything but of course it will not be sustainable. These talks remain crucial to markets and I am edging towards expecting an agreement which could see the Euro higher short term.
Longer term there seems nothing on the horizon to change a bearish view

Headlines.

• ECB continues to support Italian and Spanish bonds. The ECB is quietly lending support to these markets in an attempt to edge yields lower but without excessive buying
• World Bank slashes world growth forecast. Outlook grim. The world Bank lowered growth estimates to 2.5% for 2012 from 3.6% and sees a real risk that escalation of the euro zone crisis could plunge global economies into a slump.
• Moody’s upgrades Indonesia to Investment grade. Now which part of the world are they

Greece will fail because the Turkeys ( no pun intended) in charge cant vote for an early Christmas

Thanks to German magazine Der Spiegel I was looking at some startling facts about Greece. Greece is in 90th place in terms of competitiveness in a list of 142 countries
(just behind Lebanon, Georgia and Algeria). Not bad, could be worse you might say. Well that is until you find out that Germany is in 6 th place. The idea that 2 countries that far apart would share the same currency is crazy……….but they do

Remember all those reforms we heard about from Greece. That they would adhere to the cutbacks in the civil service as part of the enforced programme from the European Union, International Monetary Fund and European Central Bank, the Troika as they are known.
Well this is the status of the administrative reforms

Some 150,000 public-sector jobs are supposed to be eliminated by 2015, with 30,000 originally slated for elimination in 2011. In reality, 6,000 civil servants and other employees have lost their jobs. Mostly,they are people who would have gone into retirement anyway.

It beggars belief but most reforms and the sale of state assets are equally well behind the curve. I am not sure we owe Greece any more sympathy and frankly we shouldn’t give them any more money but they probably will.
 

Weekly review… Standard & Poor’s Friday 13th Part 1

As if it was some horror show Standard & Poor’s finally put markets out of the misery with numerous euro zone sovereign ratings cuts. France loses its hallowed triple A as does Austria ( France now AA+) .Perhaps of more significance was the group cut by 2 notches of which Italy ( now BBB) and Spain ( now A) are the largest borrowers.
Although the announcement came after the close of markets much had been leaked in trading time. While equities were lower and EUR/USD was back under 1.2700 it was no rout. Indeed it could be an error to expect a bigger sell -off on Monday certainly not on this news. Its been priced in already I would say.
What might be more worrying was the breakdown in Greek rescheduling talks. The rumblings there seem to point to perhaps the beginning of the end for Greece within the Euro.Provided enough of a back stop can be provided for them it may well happen sooner rather than later. Indeed prolonging it is now doing more harm than good.
The downgrade if Italy makes more of a splash I feel. There bond issuance program is an horrific spectre this year and a drop in status just adds to their troubles.
Anyway I have been looking at some of the euro zone countries so this fits in nicely

Italy
Earlier in the week ratings agency Fitch put off any cuts but was keen to point out that Italy remains the key problem within the euro zone. They noted that 1.5% growth and bond yields 1.5% above Germany would keep them solvent.Neither are within the remotest possibility with the spread against German bonds circulating around 5%
For all the austerity measures more than 20 billion will be eaten up in additional interest payments on new debt this year (€440 Billion) unless things change.
Italy lives beyond its means. A recent report into public sector wages, the Giovanni report was inconclusive but then again the very people who stand to lose most produced that report. Just look at Italian politicians who stand way at the top of Europe’s political pay league at €16,000 a month. France is 2nd on 13,500 and Spain way down at 4630 a month. Thus far cuts in expenditure while welcomed are not addressing the big problem of repealing labour laws. What’s more it seems that no one in Italy has the strength to take on the unions once and for all. This together with a tax collection system that is being exposed daily for letting citizens get away with murder when it comes to income tax contributions.So with the prospect of recession, falling tax revenues, higher interest payments, why should investors buy Italian bonds.
This weeks auction may have been ok but can Italian banks sustain buying all through the year and frankly at these levels of interest Italy cannot continue to be solvent.

Spain
Spain appears a little better off than Italy as bond yield near 5% show , purely on the amount of debt they have. They too had a better bond auction but once again this is Spanish banks buying Spanish government debt. What’s more the Spanish banks remain the real problem. Deleveraging is leaving no money for lending to the wider economy. Unemployment at 23% looks like its going to go up too. I am a great believer in seeing for yourself. When I arrived back at Barcelona airport on Monday the car parking company I use had gone bust ( Got my car but no keys so maybe I was lucky). All around where I live shops are closing. We wonder if in a few years we will just be left with the Chinese stores selling everything (Chinese) and they would appear to be the only buyers or renters of commercial property. Empty apartments are numerous as they are all over Spain. Every business you know of is complaining at the fall in spending. If it is a poor summer for tourists then this could be the last straw for many more businesses.

So we need a miracle to get back on track and that as we know seems unlikely from the ECB or Germans who now control the situation. The downgrades may well affect the ability of the EFSF (European Finance & Stability Fund) to raise funds respectable levels. They after all have Ireland Portugal and Greece to look after at the moment.
The Euro should probably not be sold next week. It is still a little oversold and as I said this could be a classic sell the rumour buy the fact job. Stock markets have started the year well and they will need to be watched. A general risk sell-off will not help the Euro but I still feel there is one good bounce left in it. Further down the road the US QE (Quantative easing) argument seems to be gaining momentum and you get the feeling the Federal Reserve will do it just because it shows they care.

One final thing. I do believe that the debt problem in the euro zone could be ended very quickly. As the citizens of Greece ,Italy and Spain have enjoyed so many years of their own false accounting paying in many cases derisory levels of tax I say let them, bail out their governments. Their pension money should be seized and used to fund debts. The IMF was designed to bail out the needy countries not poor governments from rich countries who’s residents paid inadequate taxes.Why should other EU countries whose residents pay their taxes subsidise those who don’t pay. Time to stand up Angela and tell them you pay not us. If the citizens of Italy thought they might lose their savings if they did not pay the correct taxes then that might spur them to do so. Bailouts for these are obscene and I do hope the Chinese or Indians do nothing to help.
On a political note I see Marie Le Pens National front lies just 2% behind Mr Sarkozy. and just 7% behind the socialists. OH what fun if she surges in the poles. It could be another Joan of Arc moment. Eric Cantona unfortunately has less chance of making the second round

Friday update… Euro short covering on Italian and Spanish bonds

Well it had to happen some time. A short squeeze on the Euro which has seen EUR/USD bounce a couple of big figures to 1.2865. The relative success of Italian and Spanish bond auctions led the move and equities and those bonds are a little better today. Put in perspective though, Italian 10 year yields are 6.6% from over 7% but unfortunately need another 5% on the downside if deficit numbers are going to add up. We certainly have potential for more upside but would look to sell again near 1.30
Technically the downside remains the order of the day unless we were well above 1.33 something I just don’t see.The ECB and bank of England remained on hold as expected although Mr Draghi tried to be a little more upbeat on the euro zone.

Headlines

• ECB Draghi. Tentative signs of stabilization in Euro zone
• Germany likely to downgrade 2012 growth estimates to under 1%
• German lawmakers feel Greek Euro zone exit can be managed ok
• Greece confident of debt rescheduling this week
• IMF not confident of Greek deal soon….that’s what makes a market
• China reserves hit $ 3.2 trillion…problems solved

CHECK OUT OUR WEEKEND REPORT ON SPAIN & ITALY ( Good reading only if short EUR/USD)