EUR

DETAILS OF EU/IMF/ECB Rescue

1. The 750 billion funding facility consists of 440 billion in government-backed guarantees from Eurozone nations, a 60 billion of in loans from the European Commission and 250 billion from the IMF in the form of fiscally-driven package (the bulk of which will be paid in by the Funds largest shareholderthe US).

2. The participation of the ECB will take the form of buying Eurozone govt bonds (purchases already taking place by Bundesbank, Bank of France & Bank of Italy but not yet by ECB) as well as 3-month and 6-month loan facilities at a fixed rate of 1.00%, but no 12-month facilities.

3. FX swap facilities were re-opened among the 6 major central banks (Fed, ECB, BoJ, BoE, BoC and SNB) aimed at reviving liquidity in USD-denominated money markets. As risk appetite falls and money market liquidity dries up, banks sustain a shortage of US dollars. These FX swaps are in effect a USD-denominated flow from the Fed to various global central banks in exchange of other currencies.


EURUSD is apt to accumulate gains at the NY open above $1.3080s, but any breach of $1.31 is expected to be limited at $1.3140. Medium-tem upside risks could suggests an extension to $1.3490s. Macro challenges facing Greeces austerity requirements as well as the remaining doubts with Spains short-term debt suggest a protracted retreat towards $1.23, followed by $1.17 by Q3, EURGBP has yet to prove that the 300-point recovery of the last 3 days is more than just the result of GBP uncertainty, therefore, a weekly close above 0.87 is required to reverse the 2-month downtrend.


Ashraf