Eur/usd - page 89
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
EU in slow progress on deficit cuts
New figures from the European Commission show that EU governments are gradually making progress with their financial problems.
The budget deficit - the amount of new borrowing they undertake - came down last year.
For the whole EU, it fell from 3.9% of GDP in 2012 to 3.3%. For the eurozone, the decline was from 3.7% to 3%.
But they are still borrowing substantial amounts, so the total accumulated debt continued to rise.
That pattern affected both the eurozone and the European Union as a whole.
The eurozone figure is in line - just - with the upper limit that the EU expects member countries to meet.
Of course, there was a wide variation within the eurozone, with some countries borrowing a lot less than maximum.
Germany's government finances were close to being balanced: no new borrowing. Luxembourg managed a small surplus, which means it reduced its government debt slightly.
Others still couldn't comply with the 3% of GDP limit. France and Spain were the two big economies that went over that level, while Italy was just in line with it.
read more
German IFO Business Climate beats expectations – EUR/USD rises
The German IFO business climate rose to 111.2 points. The “expectations” component advanced to 107.3 points. Only the “Current Assessment” figure disappointed with a minor rise to 115.3 points. German Business climate was predicted to tick down from 110.7 to 110.5 in April. The “Current Assessment” component carried expectations for a rise from 115.2 to 115.7 points. The Expectations component was expected to slide from 106.4 to 105.8 points.
EUR/USD traded around 1.3835 before the publication, sticking to the 1.38-1.3830 range. It is now at 1.3835.
IFO is sometimes considered to be Germany’s No. 1 economic think-tank.
Now all eyes turn to Mario Draghi. The president of the ECB is scheduled to give a speech at 9:00 GMT. With growing fears of deflation a strong exchange rate for the euro against its peers, we could certainly hear Draghi make attempts to play down the euro.
EUR/USD is looking for a new direction. The big disappointment in the US new home sales did not give the euro a big boost. Today we have jobless claims and durable goods orders from the US.
source
Euro falls on ECB Draghi's comments on further monetary easing
The euro gave up gains against the dollar on Thursday after ECB President Mario Draghi flagged the bank could make asset purchases to ward off the threat of disinflation.
Draghi added that undue tightening of monetary conditions could lead to negative deposit rates.
The euro fell to $1.3815 after his comments from around $1.3835 beforehand, leaving it unchanged on the day.
Earlier, the euro had edged up to hit the day's high of $1.38435 after a better-than-expected German IFO survey.
Draghi Prepares Ground for ECB Bond Purchases If Needed
Mario Draghi said the European Central Bank might start broad-based asset purchases if the inflation outlook worsens as he prepares the ground for one of the most radical policies in the ECB’s history.
“The objective here would not be to defend the current stance, but rather to increase meaningfully the degree of monetary accommodation,” the ECB president said in a speech in Amsterdam today. “The Governing Council is committed –- unanimously –- to using both unconventional and conventional instruments to deal effectively with the risks of a too-prolonged period of low inflation.”
Draghi’s comments are his most explicit so far on what would prompt action similar to the quantitative easing programs at the U.S. Federal Reserve and Bank of England. Inflation (ECCPEMUY) data next week will give further clues as to whether consumer-price gains are accelerating as the economy recovers or if the euro area is teetering close to deflation.
“Draghi was very precise in explaining when and how the ECB will choose to act,” said Johannes Gareis, an economist at Natixis in Frankfurt. “The ECB is unlikely to embark on broad-based asset purchases unless the ECB feels real deflationary risks.”
The euro fell after Draghi’s comments. It was little changed at $1.3811 at 4:38 p.m. Frankfurt time. Germany’s benchmark 10-year bond yield slid five basis points to 1.517 percent.
read more
ECB's Draghi: Weaker Inflation Would Warrant Broad-based Asset Buying
European Central Bank President Mario Draghi said on Thursday that any worsening of the euro area inflation outlook may prompt the bank to adopt a broad-based asset buying scheme.
"Unlike the other contingencies, the objective here would not be to defend the current stance, but rather to increase meaningfully the degree of monetary accommodation," Draghi said in a speech in Amsterdam. He also noted that a tightening of policy stance can also result from further appreciation of the euro.
He ruled out any broad-based deflation risks in the euro area, saying falling food and energy prices along with weak demand has pushed inflation into low territory. Eurozone inflation eased to 0.5 percent in March, which is the lowest since November 2009.
Draghi listed some contingencies that could warrant policy action. These included an unwarranted tightening of the policy stance that could be due to renewed tensions in short-term money markets and the spillover of developments in global bond markets into euro area.
Further, a stronger euro could also prompt action from the ECB, he said. "The exchange rate is an increasingly important factor in our assessment of the outlook for price stability," Draghi said.
The exchange rate is not in itself a policy target, Draghi reiterated, adding that "a rise in the exchange rate, all else being equal, implies a tightening of monetary conditions, a downward impact on inflation and potentially a threat to the ongoing recovery."
"If so, this would call for policy action to maintain the current accommodative stance," he said.
The ECB policy response could include more conventional measures such as a further lowering of the interest rate corridor, including a negative deposit rate as well as a further extension of the fixed-rate full allotment procedure, the ECB Chief said.
The bank may also consider new liquidity injections via its liquidity operations, including longer-term fixed-rate operations, Draghi said.
Draghi also said further impairments in the policy transmission in particular, via the bank lending channel, could trigger policy action.
source
Denmark Exits Negative Rate Regime as Krone Defense Tightens
Denmark’s central bank showed currency speculators it won’t tolerate any test of the krone’s peg to the euro, ending an experiment with negative interest rates that started in 2012.
Copenhagen-based Nationalbanken raised its deposit rate yesterday, bringing it to 0.05 percent from minus 0.1 percent. It left the lending rate unchanged at 0.2 percent and said it intervened in the currency market, purchasing kroner to support the exchange rate. The move leaves Denmark’s deposit rate higher than the European Central Bank’s, which is at zero.
Nationalbanken doesn’t hold scheduled meetings and only changes rates to defend the krone’s peg. It first resorted to negative rates in July 2012 after Denmark’s status as a haven from Europe’s debt crisis triggered a sudden capital influx. Since then, investors have returned to markets in Europe’s core, reducing demand for debt sold by AAA-rated governments, and the krone.
“I would have expected the bank to raise its deposit rate to be at par with the ECB,” said Lars Peter Lilleore, chief analyst at Nordea Bank AB, in a phone interview. “Fixing it higher is clearly an attempt to strengthen the krone beyond that.”
The krone was little changed as of 7:37 a.m. in Copenhagen, after strengthening to 7.4623 per euro yesterday, from 7.4667, its biggest intraday gain in more than seven months. On March 26, it hit 7.4671, its weakest since June 2006. The rate has averaged 7.4499 in the past five years, according to data compiled by Bloomberg.
read more
No news remains good news for the euro
EUR/USD is feeling comfortable on higher ground towards the end of the trading week. The mixed US data released yesterday did little to shake the pair. And today, we have only second tier US data. Once again, it is “no news is good news” for the common currency. Will members of the ECB try to talk down the currency towards the end of the week?
Greek finances stabilise, total debt remains high: EU
Twice bailed-out Greece has made enough progress in stabilising its public finances to make another international rescue less likely but its total debt remains dangerously high, an EU report showed on Friday.
"Greece has made delayed but eventually substantive progress" since mid-2013, when aid payments were delayed after Athens failed to meet tough targets laid down by its creditors.
"The fiscal performance continued to be strong," the European Commission report said, with Greece reporting a better-than-expected primary budget surplus in 2013.
The surplus -- the budget balance before interest payments and bank support -- came to 1.5 billion euros, equal to 0.8 percent of gross domestic product.
Combined with the latest government measures to adjust spending, this means Greece is on track to "secure the 2014 fiscal target" of its second bailout programme, the report said.
"It is essential to ensure that the ambitious reform agenda is fully implemented to close any remaining fiscal gaps," it added.
Over the 12 months to May 2015, Greece must find 7.5 billion euros to balance the public finances.
This is down from previous estimates of 10-11 billion euros after a successful government bond sale earlier this month raised 3.0 billion euros.
The report said some 2.0 billion euros needed by August could come from the commercial banks, who backed by new investors may redeem the government-held preference shares issued to support the lenders at the height of the debt crisis.
Extra funds could be raised by fresh government operations in the money markets or found in resources not being used elsewhere.
Such measures plus aid payments would also cover the 5.5 billion euros due by May 2015, providing the "necessary reassurances that the programme remains sufficiently financed," the report said.
If the immediate financing problems are under control, total debt remains extraordinarily high, the report showed, while giving no indication of how it could be brought down in line with the sharp forecast reduction.
Greece's total debt will peak at 177 percent of GDP this year -- way above the EU 60-percent limit -- and decline to around 125 percent by 2020, the report said.
This level is then supposed to drop to below 110 percent by 2022, assuming growth projections hold true.
Asked how the debt mountain could be reduced so quickly, an EU official said "that has not been part of the report. It is premature to answer this question."
Having met the primary budget surplus target, Greece's eurozone partners are committed to examining the country's overall economic position later this year, amid speculation of perhaps a third rescue package or a debt write-off.
Greece hopes to avoid a third rescue but has said it needs its creditors to ease the debt burden so as to give the economy space to grow.
The 'Troika' of the European Union, the European Central Bank and the International Monetary Fund rescued Greece twice, in 2010 and 2012, putting up 240 billion euros in aid plus a hugely controversial private sector debt write-off for another 100 billion euros.
source
French Joblessness Hits New Record High - Up 32 of Last 34 Months
Hollande's promise to bring jobs to the nation is failing dismally. It is no surprise that Le Front National are gaining power asfor the 32nd time in the last 34 months, joblessness has risen in France (to a new record high). Nothing to add here, yields continue to fall in Europe as nothing matters but hope for ECB QE as the 2nd biggest economy in Europe (and 5th largest in the world) is getting worse faster...
source
Euro-zone QE: How about buying Gold?
Here’s an idea: the European Central Bank could fight deflation by printing euros to buy gold from outside the euro-zone, thus weakening the exchange rate of euro. In turn, exports will become more attractive and import prices will rise, boosting growth and inflation.
Sounds like a crazy idea? It certainly is in the realm of unconventional monetary policy which the ECB has unanimously agreed upon. The central bank has limited tools and may be forced to take action sooner than later. Talking the euro down is now akin to crying wolf. Here is why action is becoming urgent, why the known tools are problematic and 3 advantages of buying gold.
Deflation is taking hold
The specter of Japan’s lost decades is looming over the euro-zone: falling prices can result in consumers deferring buying, less production, less jobs, less consumption, etc. Upon entering such a vicious cycle, it is hard to escape.
Recent euro-zone inflation data for March shows headline CPI at 0.5%, very far from the ECB’s “2% or below” target and the lowest since 2009. Also core inflation, which is the focus of other central banks, is at the post crisis low of 0.7%.
On a constant tax basis (Ben Lord explains here why this is important), deflation is already reality in Italy, Spain and the Netherlands. France is at 0.2% and German inflation is also below 1%. It is not only a case for the “program countries” as Draghi said, or the peripheral ones, but low inflation is seen everywhere. The ECB is not successful in its mission.
A higher level of inflation and support to growth can be achieved by a lower exchange rate of the euro, which remains stubbornly high. EUR/USD is on high ground, the weakness of the yen is keeping EUR/JPY at high ground and the recent halt in the depreciation of the Chinese yuan means that EUR/CNY is also too high. These are the world’s three largest economies.
The ECB has refrained from action in recent months and preferred to keep its powder dry. Instead, officials tried their way by talking about possible tools, the unanimous readiness to use unconventional tools and ever growing explicit mentions of the exchange rate.
Problematic tool #1: negative deposit rate
The possible tools are powerful: Quantitative Easing and a negative deposit rate. Both can do the job, but the ECB seems reluctant to use them.
A negative deposit rate punishes banks for parking money with the ECB and is supposed to make them lend more money to the real economy. It also devalues the euro. However, this uncharted territory, which the ECB is “technically ready” to use, probably scares them off as it could have unintended consequences, such as sending money away also from European bonds.
Draghi’s “everything it takes” speech and the subsequent OMT program from mid 2012 managed to restore confidence in government bonds of these countries much more than any austerity program. It is important to note that debt to GDP ratios continued rising in the euro-zone. Trust made the difference and bridged the gap over reality.
Problematic tool #2: QE
The US, the UK and Japan have launched large scale QE programs in which the central banks buy local government bonds, thus lowering the long term interest rates and also contribute to a lower exchange rate. The ECB is a different story.
How will the ECB decide which bonds to buy? There are 18 member states and any distribution would be criticized. In addition, there is a legal limit on monetary financing and also a moral hazard in doing so. Making such a move would be complicated and would draw not only criticism and legal challenges from Germany, and possibly other countries.
Another option, suggested here by Jeff Frankel, is that the ECB buys US treasury bonds. This would bypass all the internal issues in Europe and surely lower the exchange rate in much faster way.
Well, this would cause international criticism as it would be a direct intervention in foreign exchange markets by a very big player. Switzerland can maintain a 1.20 floor under EUR/CHF and the world accepts this with acquiescence. It is a small country with an important banking sector (for important people). US/UK/Japanese style QE is not considered direct intervention but domestic policy under the current G20 consensus.
Direct currency manipulation by a huge and democratic economic region would probably not go down quite well and could trigger retaliation.
The solution: gold?
The ECB could buy gold from outside the euro-zone using an expanded balance sheet, or printing euros if you wish.
Here are 3 advantages:
No legal challenges / moral hazard: as with buying foreign bonds, avoiding the buying of local euro-zone bonds means avoiding any potential violation of the EU treaties, moral hazard and internal criticism.
No direct FX intervention: Buying the ancient previous metal would not be considered an intervention, even if the intention to lower the value of the euro would be clear. So, by buying gold the ECB would also avoid the external criticism.
German applause: the ECB is based in Frankfurt and built on the model and way of thought of the German Bundesbank. German wariness of inflation dates back to the Weimar Republic of the ’20s. However, enlarging the physical assets of gold would be welcomed and counter the fears that a lower exchange rate would raise the chances of the dreaded inflation. Germany recently announced it would repatriate some of the gold stored in the United States in a popular move.
Needless to say, announcing the move would send gold prices higher, making it a less attractive investment for the central bank. However, the mere announcement would also lower the value of the euro, having an immediate effect before taking real action. And this is Draghi’s favorite tool: using words instead of action.
What do you think? Is this realistic? What will the ECB eventually do?
source