The plan is finally announced and the market met the broad lines with positivity and optimism sending the EUR/USD strongly higher.
The market accepted the efforts and saw the new measures as strong and have the hope to ease the negativity in the market. The leaders said that 50% haircut will be seen for Greek bonds and banks will have to strengthen their capital by increasing the core capital requirements to 9.0% and the EBA said banks need 106.5 billion which was also less than market expectations.
Banks will also be supported by the expanded firepower of the EFSF which will be leveraged to 1.0 trillion euros to guarantee bonds and act as an investment vehicle to finance its operations and lend to nations and banks that need liquidity.
The second bailout for Greece will also be provided and finalized before the end of the year which is also further support to Greece and offsetting the market tension which will protect nations that are liquidity strapped such as Italy and Spain and prevent market pressures from affecting them.
Those measures supported optimism that markets might normalize and the efforts can now be focused to revive growth. Strong US GDP and 2.5% expansion in the third quarter was further support to the upside momentum as investors unwound their recession fears.
With the upbeat expectations the market remains now biased to the upside yet Friday might still see choppy trading and volatility after the rally and with the end of the week trading, especially that the optimism over the European measures might change any second since investors still do not know the means of implementing the measures or their timing which if delayed long enough might derail the progress made.
Also the U.S. economy will end the week with the income report for September at 12:30 GMT were personal spending is expected to rise by 0.6% after 0.2% and income to rise 0.3% after 0.1% drop. The Core PCE is expected with 0.2% on the month after 0.1% and on the year to rise 1.7% from 1.6%.
The week will end with the University of Michigan consumer confidence final October reading at 13:55 GMT and expected to be revised higher to 58.0 from 57.5.
On Thursday, the GBP/USD pair continued its rise after showing a slight decline on Wednesday to hover around seven-week high as the improvement in risk sentiment, after the European debt-relief accord and upbeat U.S. data, enhanced demand on high-yielding and risky assets while the dollar, on the other hand, was damped as a favorite refuge.
The market reacted positively to the agreement between European leaders to make private sector bondholders to bare 50% of losses of Greek debt to cut the Greek debt by 100 billion euros, while leveraging the firepower of the EFSF to 1 trillion euros from the current 440 billion euros.
Other findings of the summit included measures on bank recapitalization which will reach 106 billion euros, bigger role for the International Monetary Fund in addition to a commitment from Italy to do more effort to slash its huge budget deficit while the European Central Bank will maintain bond purchases.
Moreover, the optimisticU.S.data added to the positive sentiment as the U.S. economy grew 2.5%, the fastest pace in a year, from the second quarter’s expansion of 1.3%. Also, initial jobless claims fell by 2,000 to 402,000 in the week ended October 22, showing improvement in the labor sector.
However, the outlook for the British economy remained clouded with uncertainty as policymaker Paul Fisher said on Thursday there is a high probability the U.K. could experience another recession and the BoE may add further to stimulus after the current round is completed.
The week ends with the release of no fundamentals from the U.K., while in the U.S. personal income and spending will be under scrutiny at 12:30 GMT, followed by University of Michigan confidence will show a rise to 58.0 in Oct. from the prior 57.5.
Data is expected to have an impact on the pair’s movements as investors will keep an eye lid on data from theU.S.to see whether the world’s largest economy will be able to lead global economies to a rebound amid the current sluggish global growth.
On Thursday, the USD/CHF pair continued its drop after showing a slight rebound on Wednesday as the sentiment was bolstered by the European debt-relief accord and upbeatU.S.data which damped demand on the dollar as a favorite safe haven.
As the Swiss franc had lost its appeal as a refuge after the several interventions that took place since September and amidst speculations the bank will raise the euro cap against the franc to 1.40 from the current 1.20, especially as some earnings reports showed that many Swiss companies were affected by the franc’s appreciation, the pair is continuing its downside direction.
The market reacted positively to the agreement between European leaders to make private sector bondholders to bare 50% of losses of Greek debt to cut the Greek debt by 100 billion euros, while leveraging the firepower of the EFSF to 1 trillion euros from the current 440 billion euros.
The debt deal restored confidence and was deemed as a good plan by investors whom took long positions on risky and high-yielding assets.
Other findings of the summit included measures on bank recapitalization which will reach 106 billion euros, bigger role for the International Monetary Fund in addition to a commitment fromItalyto do more effort to slash its huge budget deficit while the European Central Bank will maintain bond purchases.
Moreover, the optimisticU.S.data added to the positive sentiment as theU.S.economy grew 2.5%, the fastest pace in a year, from the second quarter’s expansion of 1.3%. Also, initial jobless claims fell by 2,000 to 402,000 in the week ended October 22, showing improvement in the labor sector.
On Friday, the week ends with the release KOF Swiss leading indicator at 09:30 GMT which is estimated to retreat to 1.00 in Oct. from 1.21 a month earlier, while in the U.S. personal income and spending will be under scrutiny at 12:30 GMT, followed by University of Michigan confidence will show a rise to 58.0 in Oct. from the prior 57.5.
Data is expected to have an impact on the pair’s movements as investors will keep an eye lid on data to see whether they will be able to rebound amid the current sluggish global growth.
The BOJ is still looking for the appropriate measure to prevent its currency from recording more gains and hurt the economy, as all the previous measures have failed. While a strong portion of the recent Yen appreciation has to do with the euro zone sovereign debt crisis and slowdown in the US.
The Bank of Japan expanded the stimulus as Europe’s deepening sovereign-debt crisis pushed the yen to a postwar high against the dollar, threatening the nation’s post- earthquake rebound.
Japanese monetary policy makers kept the interest rates at virtually zero and increased the stimulus to support the economy to face the sluggish global economy. Bank of Japan governor increases the assets purchase fund to 20 trillion yen and the credit-loan program to 55 trillion yen.
On Thursday at 23:30 GMT (Wednesday), the Japanese economy will release the Jobless Rate for September, which is expected to come at 4.5% from the previous 4.3%.
The Japanese annual Household Spending for September is expected to fall to 3.7% from the previous 4.1%.
The National Consumer Price Index for September in Japan will be released at 23:30 GMT where is expected to remain unchanged at 0.2%, while the National Consumer Price Index Ex-Fresh Food is expected to come at 0.2% the same as the prior reading.
The Japanese Industrial Production for September will be up at 23:50 GMT, with a previous reading of 0.8% and expected to fall to -2.8%, while the annual reading is expected to come at –2.8% from the prior 0.4%.
The U.S. Personal Income for September will be released at 12:30 GMT and it’s expected to come at 0.3% from the previous –0.1%, the Personal Spending Index had a prior reading of 0.2% and expected to come at 0.6%.
The Core PCE for September had a previous reading of 1.6% and expected to rise to 1.8%.
Source http://www.fxstreet.com/fundamental/analysis-reports/majors-fundamental-outlook/2011-10-28.html
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