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Austerity Measures And Strikes And Unrest in Europe

November 14, 2012 in Euro Zone

austerity measures and strikes in spainThe second general strike of the year was called in Spain, demonstrations, partial strikes across Portugal, Italy and Greece and the unions of workers across Europe falling in line for bigger coordinated protests.

Effects Of The Second General Strike

It was estimated that the number of auto workers working in the night shift who joined the strike were some where between 50 to 100%. Over 80% of the metal workers and over 70% of teachers also joined the forces. 50% of the workforce in healthcare sector is estimated to have boycotted the work.

While the drop in the electricity consumption at 12% due to the drop in the production and overall work was much less than the previous general strike  when it was approximately 22% but the growing unrest of the public against the severe austerity measures is evident.

Economic Outlook

The unemployment rate has gone up in Spain by 26%. This is slightly higher than Greece’s 25.4% in this 5th largest economy of European Union with the second highest budget deficit. The budget deficit of Spain in 2011 was slightly higher than 8.5% of the GDP against Greece’s 9.4%.

The Spanish economy has been in recession since 2008 with the GDP growth rate going down.

Spanish GDP Growth Rate

Spanish GDP growth Rate

Though the austerity plans should help government in bridging the gap between spending and revenues to bring the budget deficit in the reasonable and acceptable level as a percentage of GDP but on the other hand the growing unrest and loss of productivity is hurting the GDP.


Markets Today – Euro Vs. U.S. Dollar

November 9, 2012 in Forex Analysis

The reports of unexpected fall in the U.S. trade deficit by a record jump in the exports added to the post election strengthening of U.S. Dollar against the Euro. The momentum of the fall continued and EUR/USD slipped down to the low of 1.2717.

United States Exports

The Exports of Goods and Services rose to record high in September to U.S. Dollar 187.0 Billion.

Let’s have a look at the historical data of U.S. Imports and Exports from 1960.

Historical Annual Trade of US - Exports and Imports

 Europe and Euro

As mentioned the previous Markets Today post, European commission has cut down the growth forecast for Euro zone to 0.1% from previous 1.0% for 2013. That makes the overall outlook for Euro further bearish.

While the bail out of Greece against the debt crisis still carries the uncertainties. Even though the austerity measure bill for cuts in the spending towards pension, wages and benefit were approved by 153 against 128 votes yesterday, the final decision on the bail will depend on the complete report of compliance to the bail out terms.

The unemployment in Greece went up record high and moved over 25% to 25.4%. The July figure was 24.8%. With further spending cuts the outlook remains gloomy. The bailout against the debt crisis is one thing but the side effects of further austerity measures of spending cuts will not help the unemployment issues and money flow at least in the near term.

Euro Vs. U.S. Dollar – The Price Action:

Let’s see some of the charts of EUR/USD to see how the currency pair has been moving:

EUR/USD Chart 1

Euro versus U.S. Dollar-1

The above weekly chart since May 2010 shows that during the first week of September the pair had broken the resistance of the price channel and had moved up strongly. The chart also shows that during a trend the support and resistances coming near the 5-week EMA. The upward move could not sustain and last to last week the 5-week EMA support was broken strongly.

 EUR/USD Chart 2:

Euro vs. U.S. Dollar -2

The above weekly chart of EUR/USD shows another interesting point. The currency pair had been in a downtrend for over 1 year. The trend which had started in the beginning of May 2011 and continued towards the end of July 2012 had found the support just over the strong psychological level of 1.2000. EUR/USD had a consolidation from the low of 1.2042.

Now why we still call it as consolidation is because of the resistance found almost exactly at the 38.2% retracement of the above mentioned downtrend. 38.2% retracement after such a great fall is a very common phenomenon. The above weekly chart shows the classical example of 38.2% reversal and the resistance and fall from there.

EUR/USD – What to Expect:

As mentioned in the previous outlook, the 200-day SMA support is near   1.2680. We would expect at least some more deeper moves towards that support level. In case a break of that support takes place then some deeper decline towards 1.2610 or more may take place.

Euro – U.S. Dollar Chart 3

Euro versus U.S. Dollar-Chart 3

Any decisive break over 1.2885 will neutralize the above outlook for the near term, though a better confirmation would come with a decisive break of 1.3000 psychological level and then a break over the recent high of 1.3168.

ECB’s Crisis Rescue Plans, China’s Economic Releases and German court’s ruling – Push and Pull of Market Sentiments

September 11, 2012 in Forex Fundamentals and News

ECB’s Crisis Rescue Plans and Other Market Updates

ECB president Draghi’s announcement about rescue plans by unlimited bond purchase had made the sentiments not only for Euro but overall market conditions positive but almost immediately after that a very negative data about China’s imports as well as industrial output came. Not only that but the markets are impatiently waiting for the decision of German Federal Constitutional court about German standing for the bailout plans. The ruling is scheduled for September 12th.

Germany is supposed to be the biggest contributor with 27% share for the bailout fund. Well, the negative side does not end here as we have to add the possible failure of Greece reaching a unilateral agreement for the austerity measures/spending cuts to meet the bailout criteria to this list. The meeting about Greece’s plans for the spending cuts is also scheduled for September 12th.

Add all these negative pressures against the initial optimism and what comes out is uncertainties. And uncertainties are generally not healthy. The market volatility has been very low since the trading started yesterday. EUR/USD has seen just 52 pips overall move, in more than 30 hours, since the trading rooms opened yesterday. Not required to add that pressure has been downwards. AUD/USD’s movement span has been slightly more with 63 pips, GBP/USD moved without direction for a total range of 61 pips and same with USD/CHF with the total range of 52 pips and no clear direction. The story is same across the board.

EUR/USD example - low volatility of markets

This pull and push of sentiments is expected to continue till tomorrow i.e. September 12th and not much directional moves are expected till then. There is always a possibility of a sudden spike but if it comes, the expected direction for EUR/USD, AUD/USD, GBP/USD should be on downside and considering the natural correlation for USD/CHF upside.

It is better to be away from the trading desk at such times as it becomes more guess work than analysis at such times.

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