Posts by "stationdealer"

Trichet: ECB To Use Term Deposits To Withdraw Liquidity

(RTTNews) - The European Central Bank will use term deposit tenders to drain liquidity created by purchasing government bonds, the banks President Jean-Claude Trichet said.

We are not changing our monetary policy stance, Trichet said, according to excerpts of an interview with German daily Handelsblatt, published on the ECB Web site on Friday. We will withdraw the liquidity that we will inject mainly through tendering term deposits.

The Governing Council will not tolerate inflation, the central bank chief added. He declined to comment on the volume of government bonds the central bank intends to purchase.

When asked about what induced him to take the decision to buy government bonds, Trichet said sharply deteriorating situation in a number of financial markets demanded swift action from the central bank. Further, he said the central bank is committed to preserve its goal of maintaining price stability.

While saying that the case of Greece was clearly an exceptional situation, he urged other Eurozone nations to implement programmes commensurate to recover sound fiscal situation.

What we must achieve first, are sound and rigorously implemented adjustment programmes fully in line with the commitment of Governments to take all measures needed to meet their fiscal targets this year and the years ahead in line with excessive deficit procedures and to accelerate fiscal consolidation and ensure the sustainability of their public finances.

Trichet said the measures taken by the U.S. Federal Reserve and the Bank of England cannot be compared with those taken by the ECB. He insisted that the ECB moves through the Securities Market Programme is not quantitative easing.

The ECB chief ruled out possibility that the measures adopted by the bank will dampen growth in Europe. It is a complete fallacy to say that fiscal soundness dampens growth. It is exactly the contrary. It is the absence of fiscal credibility which dampens growth.

Further, the central bank chief stated that the ECB has delivered price stability in line with its definition of below, but close to 2% since the euro was introduced in 1999. Trichet added that this track record underlines ECBs credibility.

For comments and feedback: contact editorial@rttnews.com

The story of the day has to be the break-out in the dollar-denominated gold price at the same time the US Dollar index is soaring. I think there is an explanation - several actually - and that traders are making the mistake in thinking long-term when in all likelihood this has been a rather short-term four to six-week phenomenon, and one that may last another week at best.

I think its prudent to adopt the adage Sell in May and Go Away - until August-September or possibly October, which is the time it will take for the likely outcome of the US mid-term elections to be known. Yes, I am referring to precious metals as well as equities.

Heres my thinking. Gold has become, for the short-run at least, a currency play; a reserve currency if you will, a place of refuge in a sea of central banks and governments who have lost control, if only momentarily, over monetary stability.

The currency market has moved from a state of nervousness to outright panic in the past six months, all starting with Greece, believed from the beginning to be only the first thread that could unravel the Euro unless stability was brought to bear.

Lets follow the timeline.

*From the summer of 2009 through October, following immense new debts taken on by most governments of the world, the price of gold lifts from about $920 to about $1050 and traders and monetary authorities start to focus on the weakest links in the sovereign debt ring. As the debt roll-over problem of Greece hits everybodys radar screen the European finance ministers start to discuss this matter. Gold then pops from $1050 to $1180. Traders then sense that the ratings agencies will downgrade Greece, and the price of gold lifts to over 1210.

*On December 8, Fitch downgrades Greeces credit rating from A- to BBB+, which immediately lifts the governments cost of borrowing. With sovereign default on the minds of traders, as few believed in the reform package being discussed by Greeces Prime Minister Papandreou - a plan to cut the government deficit by four percentage points, as a proportion of GDP, in 2010-2011 the workers rebel in the streets. Standard & Poors ratings for Greece also drop. Traders figure that the Eurozone members will force a tightening in Greece and elsewhere, so traders, perhaps with the help of the European Central Bank, drop the price of gold in just three weeks about $130/oz to $1085. Simultaneously, the US Dollar soars and the Euro drops from 150 to 142. Markets are in sync at this point just before Christmas.

*During early January, traders are focused on the spread between the interest charged on Greek and German debt, which widened to 4% (i.e., 400 basis points), and thinking that Greece may default, they lift the Euro and lift the price of gold again. Gold lifts to 1150, and the Euro to about 145. Markets are still in sync in mid-January.

*Then, for a few weeks, it looks like the situation is controllable. Gold drops to $1065 as the Dollar strengthens. But the Euro drops to 136 and Europeans are starting to get worried that inflation and higher interest rates are on the way.

European Wrap up: Choppy Morning

Portugal PM, opposition leader agree new measures to cut 2010 budget gap by about 2 bln euros Reuters source

U.S. prosecutors ask if 8 banks duped rating agencies New York Times
Merkel: Stabilisation of the euro is an existential matter. Maintains vision that one day all EU-member states will join euro. Failure of the euro would be a failure for Europe. Crisis is an opportunity for EU to strengthen economic and political union, not just common currency
Leader of Spains biggest union: General strike over cuts last thing this country needs
Shanghai stock index ends up 2.1%, biggest percentage gain in 6 weeks
UK government says agreed 5% pay cut for all ministers statement
UK March global goods trade balance -7.522 bln, much worse than median forecast of -6.41 bln
Greek February unemployment rises to 12.1% vs 11.3% in January
Things started out quite brightly, European stocks following their Asian conterparts higher, and then things just sorta fizzled out somewhat.

EUR/USD started around 1.2655 and rallied early, but sell orders noted up at 1.2690-1.2710 were never really threatened. A big German bank (infact THE big German bank) came in selling aggressively and we fell quickly. Buy orders were noted down at 1.2600/10 but a US bank helped push these aside.
Stops tripped just below 1,.2600 and we fell to session low 1.2563, just above noted buy orders at 1.2550/60. BIS seen buying at 1.2585, could have been in lower. So in recent days seen them as sellers above 1.2700 and buyers below 1.2600. Ummm.

Cable started around 1.4860 and rallied fleetingly above 1.4900. Didnt last long though. The pairing was already under fairly heavy pressure when very poor trade data (see above) helped trip stops through 1,4800 and weve been as low as 1.4747 so far. Were presently at 1.4770.

USD/JPY has had active morning. Started around 93.20 and got as high as 93.64 (just shy of stops through 93.65) and that was that. As European stocks started to give up ground, so did EUR/JPY and USD/JPY.

Buy orders at 93.00/10 were eventually taken out after brief struggle and we eventually got as low as 92.62 before some recovery to 92.75 at writing.

EUR/CHF fell as low as 1.3997, taking out barrier option interest at 1.4000. That was quickly followed by large bid for 250 mln coming in at 1.4000/05. Given that earlier reports had SNB on the bid at 1.4005 well take it that it was them. Were presently at 1.4015,

Call it what ever you want I think all this is damaging the reputation of a good old financial system. I Still dont see no reason in EUR selling or in GBP's case for these sell off, completely unfounded. I'm not selling at all and I remain Bullish here.

I do not see any joke in this, but how long till margin at these money manager vs financial brokers/hedge fund banks starts squeezing. It's starting to stink now! Another week like this and every one will be ready to pull the plug.

WAKE UP.......

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