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by Ashraf Laidi
Posted: Feb 20, 2010 5:00
Comments: 30765
Posted: Feb 20, 2010 5:00
Comments: 30765
Forum Topic:
EUR
Discuss EUR in this thread
FRANKFURT (MNI) The European Central Bank should maintain its
ultra-loose monetary policy stance until end-2010, embarking on a
gradual tightening cycle thereafter as the economic recovery gathers
momentum, the OECD said in its latest Economic Outlook, published
Wednesday.
While significantly hiking both growth and inflation projections,
the OECD said that weak price pressures and a persistent negative
output gap argue for maintaining the very accommodative monetary policy
stance until late 2010 and for liquidity support to be removed only
gradually.
After late 2010, the main policy rate should be gradually
increasedas the recovery gathers momentum, the report said, adding
that financial turbulence needs to be addressed by strengthening the
European financial regulatory and supervisory architecture rather than
through monetary policy.
Recently, more and more analysts have pushed back their rate hike
expectations well into 2011.
The OECD also urged the ECB to sterilize the bonds it is purchasing
under its new Securities Markets Programme, as planned, so as to avoid
inflationary pressures and anchor [inflation] expectations.
For now, inflation expectations appear to remain well anchored,
the organization said.
Looking more closely at the economic outlook, the OECD noted that
competitiveness has been boosted by the depreciation of the euro and
GDP growth is projected to strengthen over the coming quarters as
exports benefit from the rebound in world trade.
The new economic outlook sees GDP growth of 1.2% in 2010 and 1.8%
in 2011, an upward revision from projections of 0.9% and 1.7%,
respectively, projected in November. Inflation is seen at 1.4% in 2010,
compared with 0.9% in the previous forecast, and 1.0% in 2011, compared
with a previous figure of 0.7%.
Consumption is also likely to pick up further, aided by higher
financial wealth, stabilization of house prices and low real interest
rates, though being offset somewhat by the weakness in the labour market
and deleveraging by highly indebted households, the report said.
Investment is likely to recover only gradually in the coming
quarters, held back by remaining excess capacity, weak growth prospects
as well as continued credit constraints, the OECD projected. Concerns
over credit quality and the health of the banking system remain ripe as
European banks are unlikely to have cleaned their balance sheets of all
toxic assets, it warned.
As more robust world growth boosts exports and financial
conditions improve further, private non-residential investment should
start to make a more substantial contribution to the overall recovery.
However, in some countries the process may be held back by over-capacity
in structurally weak industries, according to the OECD.
Risks to the outlook are broadly balanced but considerable
uncertainty continues to surround the projections, the OECD warned.
The euro area economy remains sensitive to changes in financial
conditions and developments in world demand, which can surprise on the
upside, the report said. At the same time, the pace of fiscal
consolidation and its dampening effect on demand is a significant
downside risk.
The fiscal adjustment needs and difficulties in restoring
competitiveness in some euro area countries may complicate recovery and
monetary policy exit, the OECD warned. It called on Eurozone
governments to set out credible and transparent plans to restore sound
public finances, based primarily on expenditure reduction measures.
Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com
http://www.ashraflaidi.com/forex-polls/?a=18
Ashraf
Weaker euro in short-term is good news for euro zone economy
No risk of double dip recession in euro zone
Gradual yuan rise desireable
Comments, especially headline one, have helped fuel EUR/USD slide, presently down at 1.2263.
Pairing down at 1.2273 at writing from North American close Tuesday up around 1.2340. Asian sovereigns noted selling into rally above 1.2350. Guys Again 1.2350 playing an important sup/res level here, if you remember Euro jumped to recent lower high's once it broken that level last week. So 1.2350 to play an important barrier in days ahead.
Market noted Fed Chairman Ben Bernankes comment that Fed doesnt want to be providing USD swaps as a permanent service.
Euro zone data little thin on the ground this morning:
"Italy joins euro austerity drive"
Among other things:
"Added to these, a clampdown on tax avoidance is also planned."
LOL! Some hopes, I think.
Ratings agency Fitch says that global credit default swaps are being driven wider again by the European debt crisis. CDS widened 12.8% last week despite recent European actions, they say in a report.
EUR/USD is getting a short-covering lift at the moment after the talk of a stress test for European banks. It worked in the US, so markets suspect it may work in Europe. Well reserve judgment on that.US banks raised hundreds of billions in fresh capital after the banking crisis; European banks have done much less of that.
EUR/USD traded up to 1.2290 and trades now at 1.2277. Small stops are seen above 1.2300 as stocks trim losses.
Feds Bullard: Not Ruling Out More QE, But Not Seeing It
If the US economy got into another bad downturn the Fed could conceivably do more quantitative ease, but St. Louis Fed president Bullard, a relative hawk, does not see that. He sees QE being unwound over the next five years, which he calls a reasonable time frame.
Anyone want some of the Feds mortgage-backed securities?
2-Year Notes Sell At 0.769%; Bid To Cover 2.93
Not a great auction but in turbulent times investors may prefer to buy on their own terms rather than to take what they are given at the auctionMarkets already have tons of bonds on board
Stock Rebound Sputters
Not sure if the lackluster 2-year note auction is hitting stocks or were just selling off after an intraday bounce sputtered.
The S&P is down nearly 2% again. Weve lost a quick 6-8 S&P points in the last 30 minutes or so.
EUR/USD has dipped back to the 1.2271 level, EUR/USD has steadied at 89.85.
While Greece Announces Privatization Of State Owned Firms
Greece will start the privatization process for a state nickle producer, state-owned railways and real estate. They look to sell gas and water companies as well as the Athens airport down the line, Reuters reports. No word on whether any of the Greek Isles are on the block
Three Little Fed Districts Wanted To Hike Discount Rate In April
Minutes of the discount rate meeting which is held every two weeks showed that Dallas, Richmond and St. Louis all wanted a hike to 1% from 0.75% last month.
European contagion will postpone any hike, but if markets stabilize, it looks as though pressure for higher rates from within the Fed is building, a long-term plus for the dollar.
Says ECBs Current Monetary Policy Stance Is Appropriate
BRUSSELS (MNI) Avoiding a vicious cycle is the biggest challenge
facing policy-makers, and that is the key aim of the bold measures taken
recently, European Central Bank Governing Council member Ewald Nowotny
said on Tuesday.
The big challenge is to prevent a vicious circle, he said, adding
that the bold measures should be seen exactly as a way to avoid such a
vicious cycle.
We have been able to prevent a meltdown of the world economy,
Nowotny told delegates at a conference here.
The ECB slashed interest rates and deployed a range of
unconventional measures to help shore up the Eurozone economy during the
financial crisis, including generous lending and buying bonds on the
secondary market.
Some market-watchers say the most recent round of extraordinary
action, particularly the purchase of government debt, has dented the
central banks credibility and undermined the perception that it is
politically independent.
Nowotny said the ECB was a fiercely independent central bank.
From our point of view, our present monetary policy stance is
appropriate, he said, adding that the central bank wasnt engaging in
any form of quantitative easing, because it was sterilizing its
purchases of government bonds.
Nowotny also highlighted the challenge facing Europes public
finances.
In general, the good times were not used to build up reserves for
the bad times, he said, and this is something that has to be taken up
now.
This has been an important pair to watch over the last week or so and there might be more to come. If a move is almost vertical in either direction, I find there to be an increased liklihood that the 38.2% retracement will suffice. That level is 1.4870 and that was the overnight low. If a low starts to form near there then I expect another short-covering squeeze towards 1.5600 approximately.
AUD/USD has just made a fresh low for the year at 0.8066 and is now down 200 pips for the day. The pair in line with EUR/USD has shown no inclination to bounce which suggests that selling is consistent whilst buyers are simply not interested. The hourlies technical readings are oversold but everything else points to further downside.
A break of 80 cents looks a no brainer in this environment. The trouble with these markets is that nobody has any idea where the bottom is so they wont step up to the plate this exaggerates moves but that is the market we are in at the moment.
For those expecting the currencies to hit the "teen's" or "below 80" on Aussie with in hours or couple of sessions, let me assert here, risk to downside is limited and capped at 12180 and 8080 on Aussie. We might see one or more further dip as it would give opportunity to buyers in new options. While liquidity continues to reduce on defaults I suspect and have a pretty good guess, that Hedge funds, brokers, and most financials will sell Gold contracts and assets to gain margins, take profits and add liquidity to their portfolios in-order to go back into the market with buy backs, to show profits in their 3Q into 4Q where growth will be reflected back in form.
Dow futures are showing a 260 point loss whilst the S&P is down 33 points. European bourses are also extending their losses the CAC is down nearly 4% whilst both the Dax and FTSE are down over 3%.
Liquidity remains very low Libor still extending ask risk in financial markets remain high. And i stress again this is only a financial problem, do not confuse it as a economic problem. Wall Street brokers will remain busy today, have all their good clients today buying, and I wont be surprised if they get them start buying into Financials again, that might lift confidence for the financials and if they see this they will definitely not take another chance for turn around and will cash their Gold to raise some leverage and continue to gain all time trading contracts. I mean obviously they certainly dont want to wreck a market that's giving great business and all time new records of buyers/sellers. To hold competition within the market is a greater positive for financials, in order to continue making money and keep business alive.