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Archive | Interbank Forex

Greek Aid Essential for Euro Zone Stability

Greece May Need Larger Aid Package

The euro fell near a one year low against the dollar on concerns that Greece may need a larger aid package and that Greece’s debt crisis could spread to other EU nations. Some currency experts expect the euro to fall below $1.30The euro pared gains after ECB President Jean Claude Trichet told reporters that the stability of the “euro zone is impacted” by the debt crisis “underscoring the need for action.” The euro traded at $1.3191 vs. the US dollar in New York and traded at 123.97 vs. the yen. Sebastien Galy of BNP Paribas SA stated, “There’s a tremendous amount of uncertainty at the moment. The euro should break below $1.30.” International Monetary Fund Managing Director Dominique Strauss-Kahn told German MP’s that Greece may need 120 billion Euros ($158 billion USD)in aid, much more than originally thought. European Union President Herman Van Rompuy said that he is confident that Greece will receive aid in time to service its debt.  Rompuy said that negotiations between the EU, IMF and the ECB are ‘on track’ and repeated plans to call for an EU summit May 10th. Rompuy stated, “I would like to recall the strong commitment of the Euro area member states at the highest level to take the necessary steps to ensure financial stability of the Euro area as a whole.”

Government Responsibility

European Central Bank Executive Board member Juergen Stark said that EU governments need to ensure that financial troubles do not turn into a sovereign debt crisis similar to the one in Greece. In a speech in Berlin Stark warned, “The current trend in fiscal policies is simply not sustainable. … The onus is now on governments to ensure that the crisis that initially affected the financial sector, and subsequently the real economy, does not lead to a full-blown sovereign debt crisis. Averting it will require very ambitious and credible fiscal consolidation efforts. In fact, substantially stronger consolidation efforts than those conceived so far.”

Greece and Portugal Downgraded

On Tuesday Standard and Poor’s added to Greece’s problems and cut the nation’s rating to junk status and also downgraded Portugal’s rating by two notches to A-. Stark added that there is no comparison between the situations of Greece and Portugal. Stark stated, “I see no connection between Portugal and Greece, Greece is an individual case.” He said that the ECB’s record low rates are ‘appropriate’ and said that euro zone growth would be slower than growth in the US.

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Greek Debt to GDP Figures to be Revised

Greece’s Deficit Worse Than Previously Thought

The euro fell to its lowest in almost a year after EU officials said that Greece’s deficit is much worse than previously thought. Adding to Greece’s woes was another downgrade by Moody’s. Most economists expect Greece to trigger the aid package soon. The yield for 10 year Greek bonds is now almost triple the rate for German bunds. Moody’s downgraded Greece from A2 to A3. Win Thin of Brown Brothers Harriman & Co stated, “The only surprise is that Moody’s didn’t cut more. It’s quite absurd given where we are in terms of debt numbers and the cost of borrowing. The euro’s heavy, and people are selling into rallies.” The euro fell for the sixth day and lost 0.6% vs. the US dollar trading at $1.3316. So far this year the euro has fallen 7.1% against the dollar on concerns that Greece’s debt crisis will spread to other EU nations. The EU raised its estimate for Greece’s deficit to 13.6% of GDP. Greek leaders are meeting with EU officials to discuss the aid package.

Greek Accounting Practices Questioned

Greece’s mounting deficit and questions about accounting practices and the accuracy of the nation’s economic data have undermined the EU’s budget regulations and have contributed to the euro’s slide in currency markets. Sylvain Broyer of Natixis in Frankfurt stated, “They have played against the rules and now they’re getting the bill. It’s a very uncomfortable situation for the Greek government. Greece has very much benefited from the currency region, but ignored the rules.” On Wednesday officials from Prime Minister George Papandreou’s government met with EU officials to clarify the proposed loan mechanism. In May the Athens government faces 8.5 billion euros of maturing bonds lending urgency to the ongoing talks. Today Papandreou stated, “I want to reiterate one more time that all we announced and that is included in the growth and stability pact must be implemented without even one day of deviation from the timeframe we have set for each decision.”

Moody’s Downgrades Greece–Again

The news of the Moody’s downgrade triggered a decline in Greek asset prices and increases the pressure for the Athens government to trigger the emergency loan mechanism established earlier this month. Recent austerity measures have triggered social unrest in the debt ridden socialist nation. About 10,000 students and government workers marched to parliament and demanded that the government resist pressure to implement more spending cuts. Greek and EU officials may back away from a previously announced target for Greece to cut its deficit to 8.7% of GDP this year. Financial markets have been hard hit by the revised figures. Giada Gian of Citigroup said, “What concerns me is the general uncertainty about the Greek official figures. This affects market perception about Greece …that one can’t rely on the Greek statistics and that the deficit is revised up and up and up.”

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Germany May Delay Greek Aid Package

No Fast Tracking Says Merkel’s Opposition

The main opposition party in Germany, the Social Democrats (SPD) has threatened to block the plan to fast track the Greek aid package in parliament. The move could delay the implementation of the critical aid package for debt ridden Greece. Carsten Schneider, the budget spokesman for the Social Democrats, told reporters that his party does not want to fast track any bill that could result in Germany guaranteeing billions of euros in aid. The move comes in advance of a critical election. Schneider stated, “We won’t go along with this. First the government can’t decide what they want to do and now they want to put us under pressure with the legislative process.”

German Politicians Wary in Advance of Election

The Social Democrats support aid for Greece but are reluctant to let conservative Chancellor Angela Merkel delay parliamentary discussion on the issue until after a key regional election in North Rhine-Westphalia. Public opinion polls show that most Germans are opposed to a Greek bailout and Chancellor Merkel has been reluctant to promise any aid in advance of the upcoming election. Merkel is fearful that any promise to aid Greece could hurt her party in the elections. The Social Democrats hope to force Merkel to accept a debate on the issue sooner than she would like. A spokesman for Merkel’s conservative party said that should Greece request aid in the coming weeks that the earliest that the cabinet could approve a bill would be May 12th and could then push the bill through both houses of parliament by May 25th.

Greek Request For Aid ‘Expected’

Investors believe that Greece will request aid in the near future but are wary that Germany could delay the aid process for political reason. A spokesman for Merkel’s party said that since Greece does not need the aid package all at once the IMF could provide the initial funds with France and Germany providing further assistance in steps.  Germany is expected to provide 8 billion euros of the 30 billion aid package and France has promised 6.3 billion euros. Although Merkel’s party has a majority in Bundestag lower house any attempt to fast track legislation requires the approval of opposition parties. Opposition to the accelerated approval process is not limited to the center left Social Democrats. The conservative Christian Social Union of Bavaria has also voiced opposition to the accelerated approval process. On Wednesday German Finance Minister Wolfgang Schaeuble told parliamentary committee that the German government expected Greece to formally request aid. An unnamed member of parliament quoted Schaeuble as saying, “We have to expect it”.

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IMF Warns Public Debt Could Prolong Credit Crisis

Sovereign Risks Could Undermine Stability Warns IMF

The International Monetary Fund said that the health of the global financial system has improved but that recovery in the global economy is still fragile. The IMF also said that investor concerns over public debt could undermine recent gains in stability. The IMF also said that Greece is a special case and should not be compared with other Euro Zone nations. In it’s Global Financial Stability Report the IMF said, “Advanced country sovereign risks could undermine stability gains and take the credit crisis into a new phase.” The IMF said there is a possibility that deteriorating sovereign credit could infect domestic banking systems and affect the real economy creating another credit crisis.

Accumulation of Public Debt ‘Significant’

The IMF is concerned that investor demand for high rates will drive up borrowing costs for the private and public sectors. The director of the IMF’s monetary and capital markets department pointed out that a new crisis is not imminent. Director Jose Vinals stated, “We’re saying that as a result of the crisis, the accumulation of public debt has been significant and there is concern now in the market with sovereign risk.” Vinals dismissed concerns that Greece’s debt crisis could spread to other euro zone nations such as Spain and Portugal. Vinals further stated, “Greece is a special case and we can’t say other countries are in that situation. These other countries have solid fiscal institutions and don’t have the fiscal uncertainties that Greece had. Greece is a wakeup call, basically saying that in some extreme cases, such as Greece, this could lead to serious problems.”

Some Banking Sectors Poorly Capitalized

The IMF reduced its estimates of global bank write downs from $2.8 trillion to $2.3 trillion reflecting improvement in the global economy. Previous estimates a year ago had been as high as $4 trillion. The $4 trillion figure included insurance company losses and was made when stocks and other assets were flat. Asset prices have risen since then enabling banks to recoup earlier losses. In the US estimates for loan write downs for 2007-2010 were reduced to $588 billion. The IMF warned that mortgage delinquencies and foreclosures will rise as unemployment continues.  Euro Zone bank write downs were reduced to $443 billion due to improvements in growth and employment. The IMF warned that although most banks are now adequately capitalized, some banking sectors remain poorly capitalized because of commercial real estate losses. The IMF report said that banks face more stringent regulations that may require them to raise more capital to make balance sheets less subject to risk.

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EU Leaders May Create Permanent Aid Mechanism

Juncker Says Permanent Aid Mechanism Necessary for EU

The ongoing Greek debt crisis has prompted European finance ministers to consider creating a permanent mechanism to deal with economic crises in the Euro Zone.  Luxembourg Prime Minister Jean-Claude Juncker addressed a news conference in Madrid and stated, “We’ve reached an agreement that we need to set up a permanent crisis (resolution) mechanism.” The European Commission and the European Union executive plan to announce the proposals on May 12th. The recent drive to establish an aid mechanism for Greece prompted EU leaders to consider creating a permanent mechanism to deal with similar crises in other EU nations. The Athens government is seeking clarification on how the loan mechanism would work.  Greek Prime Minister George Papandreou told parliament that any request for aid would be made in the nation’s best interest. Papandreou stated, “We are taking all the preparatory actions required.” The Athens government has already implemented several austerity measures including wage and pension cuts, tax hikes and greatly reduced spending. The European Commission, European Central Bank and the IMF will meet with Greek officials on Monday to discuss the details of what will be the first bailout of an EU member nation. European Economic and Monetary Affairs Commissioner Olli Rehn stated, “It is a matter of preparing a joint program of conditionality and financing if needed and if requested.”

Greece Asks For EU/IMF Talks

In a letter released to the media on Thursday the Athens government said it was asking for talks with EU officials and the IMF. Many analysts believe this is the first step in asking for outside aid.  Luxembourg Prime Minister Jean-Claude Juncker said that at the present time Greece has not asked for activation of the loan mechanism. Borrowing costs have made it difficult for Greece to re finance its debt. The spread between Greek and German bonds widened to 440 basis points. A recent poll showed that a majority of Greeks support Prime Minister Papandreou but remain unhappy about tax increases and pay freezes. Two thirds of Greeks support the current government over the conservative opposition and Papandreou’s support is at 68%.

Establishment of European Monetary Fund Proposed

German Finance Minister Wolfgang Schaeuble said in a newspaper interview that he planned to introduce proposals on the establishment of a European monetary fund to ensure EU economic stability. EU Commissioner Rehn proposed that policy coordination improvements should include EU reviews of member states draft budgets before they are approved by national parliaments. ECB Governing Council member Mario Draghi said that proposals for changes in EU rules are in the embryonic stage. Draghi stated, “There is still a great lack of detail and we are still at an extremely early stage. It’s still under discussion and no one has a clear idea.”

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Soros Warns of Greek ‘Death Spiral’

High Borrowing Costs For Greece

On Tuesday the euro fell against most major currencies as Greek worries persist and investors remain concerned about flat euro zone economic growth. Greece managed to pull off a successful T-bill sale but borrowing costs for the debt ridden nation remained high. Billionaire investor George Soros said that Greece faces a ‘death spiral’ due to high borrowing costs. At a London event organized by the well known magazine The Economists Soros said, “While it’s better than what the market is currently willing to offer, it’s still rather high. It is a question of solvency. If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency.” Soros also pointed out that “Concessional rates” would help Greece to address its massive debt and “fulfill their target.” Soros pointed out that “If they don’t, they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a death spiral. That is the danger that is still remaining.” Soros said that the Greek crisis could threaten the euro and the European Union itself. Soros stated, “The consequences of Greece leaving the euro would be the disintegration of the euro. The disintegration of the euro would take a very long way toward the disintegration of the European Union.”

Slow Euro Zone Growth a Concern

The high premium investors demand to hold Greek debt indicates that investors and traders are uncertain that Greece can manage its own problems without outside aid. Slow euro zone growth remains a concern for many investors. Vassili Serebriakov of Wells Fargo in New York stated, “Even though we had a pretty good Greek auction today, people are still finding few reasons to buy the euro in the medium term. Growth prospects are still quite subdued in the euro zone compared to that of the U.S. That’s what really preventing a strong bounce in the euro.”

Permanent Damage to Euro

In addition to Soros many analysts and economists have a negative outlook for Greece and the future of the euro. Some point out that a lack of political unity will hamper Greece’s prospects. David Gilmore of FX Analytics said, “Even if we assume that Greece and the Euro zone muddle through this crisis and Greece avoids default, there should be permanent damage to the euro. Greece has exposed two key flaws in EMU (European Monetary Union)…monetary union without political union and economic divergence with one monetary policy. I don’t forecast a Greece default, just a rising cost for Euro zone for keeping Greece in EMU.”

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Germany Drops Opposition to Subsidized Loans

Germany Agrees to Greek Loans

German Chancellor Angela Merkel’s government is dropping opposition to Greek aid and is prepared to offer Greece loans at below market rates. Rates would be above those charged by the IMF which will participate in the rescue plan along with the EU.  The loan arrangement will address German opposition to subsidized loans. Recent reports indicate that Greece may receive loans for 20 to 25 billion Euros at a rate of 5%. German opposition to subsidized loans had threatened rescue efforts and public opposition to subsidized loans for Greece is widespread in Germany. Billionaire investor George Soros said, “They have to be given some help from Europe or the IMF at concessional rates. It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.”

Lack of Clarity in EU/IMF Agreement

The European Commission said it will hold a news conference after Sunday’s teleconference between Euro Zone finance ministers. The European Central Bank and the European Commission will also participate. Under the terms of the March EU/IMF agreement the EU will provide more than half of the loans and the IMF will provide the rest. The loan mechanism would be triggered if Greece runs out of funding options. Greece received even more bad news this week after Fitch’s ratings agency downgraded Greece to BBB-, just above ‘junk’ status. Fitch’s outlook for Greece remains negative. In a statement Fitch’s said, “The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets.”So far this year the euro has fallen 6% against the US dollar. The lack of clarity in the EU/IMF agreement has been cited as one of the reasons Greece’s borrowing costs remain so high. Greek Prime Minister George Papandreou has repeatedly said that Greece needs below market costs to cut Greece’s massive deficits.

Greece Has Not Asked For Aid

Although Greece has not yet asked for aid the Athens government considers Sunday’s teleconference important. Government spokesman George Petalotis told reporters, “Greece has not asked (for) the activation of the mechanism. It is an important step to detail the terms of the mechanism.” The effects of Sunday’s conference will not be felt until Markets open on Monday.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition – meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.

Posted in Interbank ForexComments (0)

Greece Pressured by High Borrowing Costs

Greece May be Forced to Seek Emergency Aid

Today’s decline in Greek asset prices may mean that the Athens government may be forced to seek emergency aid from the EU. Greek bond prices and bank stocks have fallen to a level indicating that market confidence has run out for the debt hammered nation. Greek 10 year bond spreads widened more than 40 basis points vs. German bonds to 461 basis points and during the last three days Greek bank stocks have fallen 14%. Panagiotis Dimitropoulos, treasurer at Millennium Bank in Greece stated, “Spread levels today are insane, they are not levels for a euro zone country. It seems Greece is being pushed toward the aid mechanism.”Greek officials have said that high interest rates demanded by investors make it difficult to finance the nation’s deficit. Greece may have no other choice than to access the safety net hammered out at last month’s EU summit. Under the agreement the EU would provide bilateral loans supplemented by IMF loans if necessary.  Political divisions between EU governments on how to handle Greece’s debt problems linger and the details of the loan mechanism have yet to be sorted out causing confusion among investors.

Credibility of Euro Zone at Stake

Should Greece apply for aid the loans could possibly be delayed for a long period and the amount available could fall short of what the Athens government actually needs. Under last month’s EU agreement a unanimous vote would be required to trigger any aid package. Opposition to any kind of aid for Greece remains high in Germany and Germany could possible delay and aid package for Greece3. News reports indicate that EU nations are split on what interest rates Greece would be charges under last month’s agreement. Germany and the Netherlands have called for higher rates to deter EU countries from undisciplined spending. Some analysts believe Greece will need loans totaling 20 to 50 billion Euros to resolve the nation’s debt crisis. Under this scenario markets would be concerned about Greece’s ability to meet the tough conditions of the EU loans. Should Greece turn to the IMF the credibility of the Euro Zone could be at stake.  Turning to the IMF would indicate to markets that the EU is not capable of solving a crisis in a member state.

Possible Greek Downgrade

Rating agency Standard & Poor’s said Greece could suffer a downgrade if high borrowing costs continue although the agency’s senior analyst for Greece Marko Mrsnik said the risk of a default is low. European Central Bank President Jean-Claude Trichet also said that there is no danger of default. Germany, which can block Greece’s access to the loan package said that the rescue package is a last ditch option and aid to Greece is politically unpopular in Germany.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records.

Posted in Interbank ForexComments (0)

Dollar May Hit Eight Month High vs. Yen

Dollar to Extend Recent Gains

According to Bank of Tokyo-Mitsubishi UFJ Ltd currency experts the US dollar may extend recent gains and hit an eight month high against the yen. Analyst Sumino Kamei stated, “In the short-term, the dollar will continue to be in an upward trend.” Kamei made his prediction using a ichimoku chart which predicts a currency’s performance by analyzing historic highs and lows of a particular currency. The chart’s conversion lines charts the sum of the currency’s highest high and lowest lows for the previous nine days. The chart’s baseline is the same calculation for the previous 26 trading days. Fibonacci analysis also predicts a dollar rise.  Fibonacci analysis is based on the theory that currency prices rise of decline after hitting a high or low. Using technical analysis traders and analysts study trading patterns and prices to predict changes in stocks, currencies, commodities or indexes.

Greek Concerns Linger

Using recent trading patterns Tokai Tokyo Securities Co. has predicted that the euro ham plummet to a thirteen month low of $1.2457. Yoh Nihei of Tokai Tokyo stated, “The euro may dip below $1.30 and test lower prices,” and also said that an ichimoku chart indicates that “the euro is still in a downtrend.”In Tokyo the euro traded at $1.3581 far short of last year’s high of $1.5144 in November. The euro has been pressures all year by investor concerns about the fiscal health of Greece and other EU nations. Last week’s agreement between the EU and IMF failed to slow the euro’s slide in currency markets. The greenback strengthened after the US Non Farm Payrolls report showed that US employers added about 160,000 new jobs in March. Nick Bennenbroek of Wells Fargo & Co. in New York stated, “A strong jobs report means a stronger dollar against most currencies, including the yen,. The core underlying trend in terms of overall private-sector hiring has probably turned positive in the first quarter of 2010.”

Dollar Gains on Jobs Report

Treasury Secretary Timothy  Geithner said that the jobs report showed that the US economy is ‘getting stronger’ and business investment is “coming back” but also said unemployment remains at unacceptable levels. The dollar gained on 13 of the 16 most traded currencies. Marc Chandler of Brown Brothers Harriman & Co stated, “It’s a dollar move. The dollar is cheap because it’s trading below fair-value models. And what does that mean? It means that U.S. labor costs are relatively cheaper compared to Europe, or maybe Japan, or the U.K. or Switzerland.” Trading is likely to be muted over the weekend Easter Holiday.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.

Posted in Interbank ForexComments (0)

Dollar Expected to Gain on Upcoming Jobs Report

Dollar Will Continue To Strengthen vs. Euro Analysts Say

Many currency experts believe the US dollar will continue to strengthen against the euro as worries about the Greek debt crisis continue. The U.S. non-farm payrolls report for March is due this week and is expected to show that 168,000 new jobs were created and an unchanged unemployment rate. Analysts say that signs of economic improvement in the US could further support the greenback. A deal between the EU and the IMF to provide aid to debt ridden Greece has prevented a euro freefall but euro sentiment remains negative.  John McCarthy of ING stated, “Although we have this agreement on a Greece aid package, it is somewhat unclear as to whether it is going to be applied, when is it going to be applied…and the fact is Greece still has considerable debt. What’s to say that we will not go through this again with Greece or Portugal. This is not going away in the immediate future.” Some experts believe that the euro is in a long term downtrend similar to the US dollar’s seven year decline in advance of the global recession.

Experts optimistic About US Jobs Report

Aside from the continuing Greek concerns among investors most investors will be focused on the US employment report which is expected to show that the worst of the recession may be over. A research note from Danske Bank said, “Although the February data continued to print job losses, there are several signs the March U.S. payroll report is a very likely candidate for a significant upside surprise. This would overcome some of the skepticism about the current job market recovery.” Two other reports are due this coming week, the U.S. Institute Supply for Management report and the Chicago manufacturing survey. Both are expected to show that the US economy is recovering.

IMF Role in Greece’s Rescue Unclear

At last week’s EU summit European leaders agreed to provide loans to Greece with the IMF’s help. IMF officials were unclear on how IMF funds would be accesses and how it could impose the conditions that usually come with IMF aid. The IMF issued a statement saying, “We are following developments closely, And as we have said earlier, the Fund always stands ready to consider a request from a member country for our financial assistance.” The EU has indicated that they would provide two thirds of the funding for Greece and the IMF would provide the other third. Last Thursday Greek Finance Minister George Papaconstantinou said that Greece would prefer to obtain finds through financial markets but that will depend on interest rates.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

Posted in Interbank ForexComments (0)







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