Global currency watch
FX
prolonging the agony and of course leading to a potential loss of EU and therefore Euro credibility on the international stage.
both relief and also the allure of Euro bonds fade. Interestingly, we note that
the ‘relief rally’ never
did materialize in the EUR/USD exchange rate when the second round of LTRO was announced at the end of February, falling in a matter of hours from the resistance levels mentioned earlier
of just below 1.35 very
quickly to 1.3340, the catalyst of the last downturn; naturally on genuinely good news the Euro would tend to appreciate and we take this as a warning sign.
Euro officials, who of course want the Euro debt crisis to be over, have been alluding that success in this respect has in fact been achieved, but again we prefer to wait and decide for ourselves because we simply see too many combinations of coinciding, conflicting, uncertain and peripheral factors at work that, combined, prevent a true assessment of the situation at this relatively early juncture. Greek bank deposits reportedly
fell almost 3% in February 2012 and this bank run shows deposits at low levels not seen since October 2006. Greece’s latest 10 year bond yielding almost 20% is a sad reflection of just how tough the situation is becoming, especially when compared with the 2.2% 10 year yield of the United States.
Q1 was all about markets coming to terms with the depth of the crisis and attempting to establish whether the measures taken by banks and governments were enough to stop the rot from spreading.
Hopefully this is the case, but
with elections across many EU member states this spring we fear that many issues may reignite, especially if incumbent governments are ousted due to electoral dissatisfaction and a whole new series of discussions, debates and agreements need to be embarked upon, thus further
in
The catalyst for such a move may be a simple reassessment of an as yet little-unpublicized tweak in ECB language at the end of March where it has now decided to leave the member banks to choose whether or not to accept bonds as collateral lending
entities needing f inancial assistance.
In
arrangements Januar y,
the
scope of col lateral was widened for 7 of the 17 regional CBS to allow this, so this seemingly small adjustment may narrow the landscape if borrowers cannot somehow meet demands of those lenders opting not to accept such criteria .
This is all serious business, yet at least some are able to maintain a degree of levity towards the situation, according to an FT blog. In a ‘leaked’ press release, a new Euro crisis summit is called for on April 1st, summoning ‘all countries whose currency is the euro’. According to the memo, should such a meeting take place it would therefore include the Vatican and Pope Benedict XVI - as an insider put it, ‘divine intervention to save the euro… is now seen as the most credible strateg y”. (Can the Pope save the Euro?”
ft.com blog )
FX TRADER MAGAZINE April - June 2012 13 to
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