Forex Forum to Share, Discuss, Communicate and Trade Forex

November/03/2011- Comments and forex-analytics from FBS

Dive deeper into the fundamentals of the market. If you come across any major Forex related news item or wish to share your opinions and ideas related to the local or global economy, this forum is the place for you. Share the news and views about Fundamental Analysis and economic events here.
Image

November/03/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Thu Nov 03, 2011 4:17 pm

Greece’s membership in euro area depends on referendum results

The Greek dilemma is finally put point-blank: German Chancellor Angela Merkel said that Greece’s referendum on a bailout deal will determine whether it will stay in the euro area.

French President Nicolas Sarkozy claimed that the indebted nation will receive any financing only if it holds to the terms of a rescue agreement designed last week.

This is the first time when European leaders raised the prospect of the euro zone splintering. The vote is scheduled on December 4 or 5.

Greek Prime Minister George Papandreou who has initiated the referendum thinks that there’s the necessity of “wider consensus” for the bailout terms expressing confidence that his nation will remain the member of the monetary union. Greek Finance Minister Evangelos Venizelos, on the other hand, argues that such question can’t be submitted to referendum.

The results of the polls show that although the majority of Greeks are against the austerity measures imposed on them by the bailout package they don’t want their country to leave the currency bloc.

It’s also necessary to note that the next 8-billion-euro tranche of the first bailout package will be delayed until the referendum results are announced.

Bernanke: US economy may need additional stimulus

Federal Reserve Chairman Ben Bernanke claimed yesterday that additional monetary stimulus may be needed to reduce unemployment as US economic outlook seems to be rather pessimistic. Among the options of such stimulus Bernanke named the third round of quantitative easing, extending the period of record-low borrowing costs or estimating the conditions necessary for the rate hike.

The Chairman admits that the central bank has overestimated the pace of US economic recovery and expects American economic growth to be “frustratingly slow”, while FOMC statement states that even after relatively good figures in the third quarter there are “significant downside risks”. According to Bernanke, these risks include the effects of European fiscal and banking problems.

The Fed’s GDP growth projections for 2012 were lowered from 3.3-3.7% (June’s estimate) to 2.5-2.9%. The projected unemployment rate in the fourth quarter of the next year was raised from the previous forecast of 7.8-8.2% to 8.5-8.7%.

The Operation Twist or the lengthening of the Fed’s bond portfolio maturity is left in place. US monetary authorities also confirmed the plan to hold the Federal funds rate between 0% and 0.25% at least until the middle of 2013.

It’s clear now that the Fed’s policy has become more accommodative and the central bank is ready for aggressive actions.

Despite the increased possibility of QE3 that should have weakened US dollar the greenback strengthened against euro. Analysts at UBS think that this may be explained by the fact that some traders expected the Fed to take even more loose approach. In addition, one should remember that the pair EUR/USD is also weakened by the ongoing crisis in the euro area.

Image
User avatar
vanvirtue
Senior Member
 
Posts: 630
Joined: Tue Jun 28, 2011 9:29 am

Re: November/03/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Thu Nov 03, 2011 4:19 pm

UBS: what if Greece has to quit euro?

Analysts at UBS tried to estimate the potential consequences Greece will face in case it has to leave the euro area.

On the one hand, the nation would regain control of exchange and interest rates. On the other hand, new currency would fall by about 60%. Greece’s borrowing costs would rise by at least 7 percentage points, so that position of banks and companies would seriously deteriorate. The country’s trade will drop by 50% even taking into account the competitive advantage exporters will gain from the devaluation.

All in all, according to UBS, quitting euro would cost each Greek 11,500 euro in the first year and 4,000 euro in following years.

Niesr analyses the odds of the UK recession

National Institute for Economic and Social Research estimate the possibility of recession in the UK by 50%. If the European policymakers don’t find the solution of the region’s debt crisis, the odds of British economic contraction will equal to 70%.

The economists lowered their economic growth forecasts for 2012 from August estimate of 2% to 0.9%. In their view, UK GDP growth will keep stagnating in the first half of the next year as it was this year going through the slowest recovery since the end of the First World War.

Niesr has also revised down its forecast for the global economic growth from 4.5% to 4% in 2011 and 2012 noting that there are downside risks to this projection from the crisis in Greece.

Image
User avatar
vanvirtue
Senior Member
 
Posts: 630
Joined: Tue Jun 28, 2011 9:29 am

Re: November/03/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Thu Nov 03, 2011 4:25 pm

ECB lowered the benchmark rate

The European Central Bank decided to cut its benchmark interest rate at President Mario Draghi's first policy meeting in charge by 25 basis points to 1.25% after it had twice increased it – in April and July.

Such move was unexpected by the majority of the economists as inflation in the euro area showed the reading of 3.0% in October for the second month in a row, while the central bank’s target lies just below 2%.

According to Dragi, the main reason for the cut is the deterioration of the euro zone’s economic data. The ECB President underlined that growth slowdown will cool inflation perspectives. In his view, at the end of the year the monetary union will face mild recession.

Currency strategists at Bank of Tokyo Mitsubishi UFJ think that ECB’s decision to ease its monetary policy will increase the pressure on the single currency and the demand for euro will keep declining. In their view, European borrowing costs will be lowered to 1% during the next few months.

The pair EUR/USD traded today in quite volatile manner: by the middle of the day it reached high at $1.3834 and then returned to the day’s minimum in the $1.3660 area before another bounce to the day’s maximums.

Image
User avatar
vanvirtue
Senior Member
 
Posts: 630
Joined: Tue Jun 28, 2011 9:29 am


Return to Dive Deeper - Forex News and Fundamental Analysis

 

Who is online on Forum

Registered users: Baidu [Spider], Bing [Bot], Google [Bot], Google Adsense [Bot], Yahoo [Bot]