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OctaFX.Com - Energy fuels euro inflation but ECB rate cut still on

BRUSSELS (Reuters) - Euro zone inflation accelerated in September as energy costs soared but core prices stayed low, likely leaving the European Central Bank on track to cut interest rates soon.

Consumer prices in the 17 countries sharing the euro rose 2.7 percent year-on-year, the European Union's statistics office Eurostat said on Friday in a first estimate that marked a rise from 2.6 percent in August.

Markets had expected inflation to ease to 2.5 percent.

Energy prices jumped 9.2 percent after a 8.9 percent rise the previous month.

Core inflation, excluding both energy and unprocessed foods, fell to its lowest level in a year of 1.7 percent in August, the latest month for which the data has been published.

Together with recent data indicating that the euro zone economy entered a recession in the third quarter, Friday's inflation reading kept intact expectations that the ECB will not wait long before delivering a growth-boosting rate cut.

"It seems highly likely that the ECB will take interest rates down from 0.75 percent to 0.50 percent in the fourth quarter," said Howard Archer, economist at IHS Global Insight.

"While the ECB could act as soon as its October meeting next Thursday, we lean towards the view that they will probably hold off to November."

Just 14 of 73 economists polled by Reuters this week expect the ECB to cut rates when it meets next Thursday but a majority expect the bank to have lopped off 25 basis points by the end of the year. (ECB/INT)

The ECB kept its main interest rate unchanged at a record low of 0.75 percent at its meeting earlier this month, taking another policy-easing route by agreeing to launch a new and potentially unlimited bond-buying program.

MUTED PRICE PRESSURES

Inflation fell steadily from 3 percent in November 2011 to stabilize at 2.4 percent in May, June and July, as the euro zone economy slowed sharply as a result of the sovereign debt crisis.

But it rose again for the first time in 11 months in August due to higher fuel and transport costs.

The ECB's target is to keep inflation below, but close to 2 percent, a rate it is not expected to drop back to for some time, though price pressures should ease further as the economy continues to struggle.

"Euro zone inflation should resume its downward trend before long as previous sharp increases in energy and food prices cease to boost the annual rate," said Martin Van Vliet, economist at ING bank.

"But with commodity prices remaining high and volatile, and further VAT hikes in the pipeline (e.g. in the Netherlands next month and in Finland in January), it is probably going to be a very gradual descent," he said.

Headline inflation might stay above 2 percent well into next year.

"The bottom line, however, is that underlying inflation pressures remain muted in most parts of the euro zone economy. This gives the ECB scope to ease monetary policy further," he said.

In September, Eurostat for the first time provided year-on-year prices changes in the index's components - food, alcohol and tobacco, energy, non-energy industrial goods and services.

It publishes a more detailed breakdown for September as well as monthly inflation figures on October 16.

Sep 28, 2012 10:59 AM

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OctaFX.Com -Spain's Popular resists state aid with 2.5 billion euro share issue

MADRID (Reuters) - Spanish bank Popular (POP.MC) said on Monday it aims for a 2.5 billion euro ($3.22 billion) share issue by mid-November and will scrap its October dividend to shore up capital and avoid taking funds from a euro zone bailout for the country's banks.

Popular, Spain's sixth biggest bank by assets, was flagged on Friday in an audit of the country's banking sector as needing an extra 3 billion euros in capital in case of a serious economic downturn.

Popular shares sank 9 percent after it said it would not take rescue funds, but other Spanish banking stocks rose on Monday after the publication of the audit removed uncertainty from the sector.

The stress test by consulting firm Oliver Wyman put the extra capital needs of 14 Spanish banks tested at 59.3 billion euros, below the 100 million euro credit line Spain agreed with the euro zone in July to clean up the banking sector.

Many Spanish banks became saddled with repossessed property after a building bubble burst in 2007 but there has also been a steep rise in bad loans from other sectors of the economy which is in a deep recession.

Spain has said it would need 40 billion euros of the euro zone aid since some banks could meet part of the extra capital needs themselves.

"We expect to launch the share increase in the next five weeks, probably by mid-November," Popular's Chief Financial Officer Jacobo Gonzalez-Robatto told a conference call with analysts on Monday after announcing the capital raising plan.

Popular needs to reduce its capital shortfall to around 2 billion euros by December if wants to avoid a public capital injection in the short term.

The Wyman report said Popular's estimated capital needs were based on an adverse scenario in which the economy contracts more sharply than economists currently forecast.

Popular, one of seven banks that failed the stress tests, is not planning to merge or acquire another bank in the near future, Gonzalez-Robatto said.

Of the seven banks that need capital, four of them have already been taken over by the state. Bankia (BKIA.MC), Spain's biggest failed bank, was seen needing almost 25 billion euros of capital in a stressed scenario.

Banco Mare Nostrum, which the audit showed needing 2 billion euros in capital, said on Friday it would sell assets to reduce needs by 1 billion euros. Banco Mare Nostrum and Popular had been in talks for a merger, but the government said on Friday it would not promote tie-ups between weaker banks.

Another bank with capital needs, a three way merger known as Liberbank-Ibercaja-Caja3, said it would put soured assets into a "bad bank" the government is setting up as part of the conditions for receiving European aid for the banks.

Popular said it would form its own asset management company to handle toxic assets left over from Spain's property market crash four years ago.

Popular said it would not pay its October dividend, but hoped to maintain plans for a 50 percent payout in 2013.

The bank's shares were suspended on Monday morning after the share issue announcement. When they began trading again they fell 9.11 percent to 1.547 euros per share.

Oct 1, 2012 10:39 AM

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Dollar stronger across the board, hits 11-mth high vs yen

Talking Points

 

  • Euro: Jobless Rate Hits Record-High, ECB Overstepping Mandate
  • British Pound: Fitch Continues To Fire Warning Shots, Larger Correction Underway
  • U.S. Dollar: ISM Manufacturing, Construction Spending On Tap- All Eyes On Bernanke

 

Euro: Jobless Rate Hits Record-High, ECB Overstepping Mandate

Although the EURUSD bounced back from an overnight low of 1.2802, the economic docket continued to instill a weakening outlook for the euro-area as the jobless rate climbed to a record high of 11.4% in August.

As the debt crisis continues to raise the threat for a prolonged recession, European Central Bank board member Joerg Asmussen warned ‘there could be additional need for external financing’ in Greece, while there’s talk that the periphery country may receive a portion of its next bailout payment as the region continues to request more time in meeting its budget target.

As the governments operating under the single currency become increasingly reliant on monetary support, former ECB board members Juergen Stark and Otmar Issing argued that the unlimited bond purchasing program goes beyond the mandate to ensure price stability, and the Governing Council may come under increased scrutiny as President Mario Draghi puts the central bank’s credibility on the line to buy more time.

Indeed, the negative headlines coming out of Europe instills a weakening outlook for the region as policy makers struggle to restore investor confidence, and the rebound off of trendline support is likely to be short-lived as the EU maintains a reactionary approach in addressing the debt crisis. In turn, we should see the EURUSD come under additional pressure over the coming days, and we will be keeping a close eye on the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the pair searches for support.

British Pound: Fitch Continues To Fire Warning Shots, Larger Correction Underway

The British Pound slipped to 1.6107 as manufacturing in the U.K. contracted more-than-expected to September, while private sector credit in Britain remained stagnant as mortgage approvals increased an annualized 47.7K in August amid forecasts for a 49.2K print.

Meanwhile, Fitch continued to fire warning shots against the U.K., with the rating agency warning that the government is now ‘standing still in terms of deficit reduction,’ and the growing threat for a credit-rating downgrade may continue to dampen the appeal of the sterling as the fundamental outlook for the region remains clouded with high uncertainty.

As the GBPUSD carves out a near-term top coming into October, the pullback from 1.6308 should turn into a larger correction, and we may see the pound-dollar threaten the ascending channel from earlier this year as the relative strength index fails to maintain the bullish trend carried over from June.

U.S. Dollar: ISM Manufacturing, Construction Spending On Tap- All Eyes On Bernanke

The greenback is struggling to hold its ground ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the advance to 9,891, but we may see the reserve currency regain its footing as the economic docket is expected to reinforce an improved outlook for growth.

Indeed, the ISM Manufacturing report is anticipated to show an expansion in business outputs, while building activity is projected to rebound in August as the recovery gradually gathers pace. However, as Fed Chairman Ben Bernanke is scheduled to speak on monetary policy later today, market participants may show a muted reaction to the data, and the fresh batch of central bank rhetoric may set the tone for the first trading week of October as market participants weigh the prospects for future policy.

Oct 1, 2012 12:50 PM

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OctaFX.Com - Are the Glory Days of Currency Trading Over?

Once upon a time, the foreign exchange (FX) markets enjoyed a clear framework for trading and were seen as a reflection of the health of global economies. But as central bank programs of quantitative easing have been introduced, currency market trades are not so clear cut, according to analysts at HSBC.

The latest report from HSBC's global research department heralds "a new era for FX" as currency carry trading, a popular strategy of currency trading that exploits global interest rate differentials, struggles in an era of central bank intervention and low interest rates.

"In the glory days of carry, the FX market had the luxury of a clear framework for understanding and trading currencies," the report, led by David Bloom Global Head of FX Strategy at HSBC (London Stock Exchange: HSBA-LN), begins.

"Life for FX market was simple. Get your interest rate calls correct, and you could both understand and trade the FX markets....In the low inflation environment, higher short rates meant a stronger currency and vice-versa...FX was beautiful."

"It was clear, liquid and transparent," the report surmises.

Fast forward through five years of global economic crisis and central banks ranging from the Federal Reserve to the Bank of Japan have introduced near-zero interest rates and quantitative easing (explain this) in an attempt to stimulate economic growth creating "a problem for markets," the report says.

Indeed, central bank intervention has made the currency trading world a risk on - risk-off place, according to HSBC's report. Investors are now flocking to emerging market currencies and safe havens alike, which makes currency trading much more volatile and harder for investors to interpret.

"Today carry's hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of quantitative easing," the report states.

"We now live in a world dominated by risk-on/risk-off, and prospects for unconventional monetary easing have become the key element of [that] dynamic."

HSBC notes that not all easing has had negative effects for currencies. Indeed, in the euro zone it has been positive as "non-conventional easing" European Central Bank easing has lowered "the possibility of euro (EUR=X) default and disintegration" and has attracted investors.

In sum though, central bank policies have created an uncertain environment for currency traders as it becomes harder to identify economic trends. As global economic data points to an uncertain future in the euro zone and events such as the U.S. fiscal cliff approach, the world of FX becomes opaque, HSBC states.

"This lack of clarity is creating a puzzling outlook for many currencies...The world of FX has become one of perception rather than concrete links," HSBC says.

Read More:What is the "Fiscal Cliff"?

In the U.S., for instance, easing has been dollar (.DXY) negative as "the resultant 'risk on' mood takes us to higher yielding more risky currencies." This was indeed exemplified by the dollar falling to a four-month low after the Fed announced "QE3" in September that led to emerging market governments such as Brazil fearing a new era of "currency wars".

HSBC's view on currency market volatility is reflected by other FX strategists too.

Sebastien Galy, Senior Currency Strategist at Societe Generale told CNBC on Wednesday that the robust Australian dollar was an example of how investors flocking to a safe-haven asset had inflated a currency that should "be massively lower".

"It should be massively lower...in a normal environment. But everyone is looking for yields which leads to over-shoot," Galy said, "that overshoot has been happening for years."

Indeed, HSBC concludes, as the carry trade dies a bit of the currency market could go with it.

"The demise of carry has brought "onion skin" layers of uncertainty into the FX market, tears and all."

Oct 3, 2012 10:55 AM

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OctaFX.Com -Euro Mixed After ECB Holds Rates; All Eyes on Draghi Press Conference

THE TAKEAWAY: EUR European Central Bank Rate Decision > Key Rate on Hold at 0.75% as expected > EURUSD NEUTRAL

The European Central Bank has announced its key interest rate for the coming weeks, where it is on hold at 0.75%, as expected according to a Bloomberg News survey. The ECB also announced that it would be leaving its marginal lending rate unchanged at 1.50% and its deposit facility rate unchanged at 0.00%.

ECB President Mario Draghi is now scheduled to speak at 08:30 EDT / 12:30 GMT.

EURUSD 1-minute Chart: October 4, 2012

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Charts Created using Marketscope – Prepared by Christopher Vecchio

Following the rate decision, the EURUSD perked up more from its pre-release gains, trading as high as 1.2967, before falling back to 1.2951 at the time this report was written. The pair remains near session highs set post-release with the session low coming in at 1.2900.

Oct 4, 2012 12:18 PM

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OctaFX.Com - Dollar, Yen Aim Higher as All Eyes Turn to Eurozone FinMin Summit

The safe-haven US Dollar and Japanese Yen rose overnight amid risk aversion before a Eurozone finance ministers’ summit. More of the same appears likely ahead.

Talking Points

 

  • US Dollar, Japanese Yen Rise as Risk Aversion Grips Asian Stock Markets
  • Canadian Dollar Well-Supported in the Wake of US Employment Report
  • Eurozone FinMin Summit in Focus for Greece Funding, Spain Bailout Cues
  • IMF Likely to Downgrade Global Economic Outlook in Updated Data Set
  • Germany’s Trade Surplus Set to Narrow, Industrial Production to Decline

 

The US Dollar and Japanese Yen advanced against most of their major counterparts as Asian stocks declined, boosting demand for the go-to haven currencies. Regional bourses (excluding Japan, where markets are closed for a holiday) slumped 0.9 percent on average. The Canadian Dollar was likewise well-supported in the wake of Friday’s better-than-expected US jobs report as traders wagered that a firming recovery in the world’s top economy will boost cross-border demand for its northern neighbor.

From here, all eyes turn to the Luxembourg, where Eurozone finance ministers are due to begin a two-day meeting to discuss debt management efforts. Traders will be interested in any moves to mend disagreements between the Greek government and troika monitors that open the door for disbursement of the latest batch of bailout funding. Any clues about the timing of a Spanish request for a full-on rescue package are also sought, particularly after borrowing costs rose at a bond auction last week.

Against this backdrop, the IMF is due to release an updated set of global economic performance expectations, with downgrades widely expected. This suggests that absent concrete positive cues from Luxembourg, the risk-off mood is likely to carry forward. On the data front, Germany’s Trade Balance surplus is expected to narrow to €15.2 billion – the lowest in four months – while Industrial Production is forecast to have fallen 0.6% percent in August.

 

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Oct 8, 2012 05:40 AM

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OctaFX.Com - Spain doesn't need help, euro zone ministers say

LUXEMBOURG (Reuters) - Euro zone finance ministers delivered a united defense of Spain on Monday, saying the country was taking steps to overhaul its economy, funding itself successfully in the financial markets and did not need a bailout, at least for now.

Arriving at a meeting in Luxembourg to discuss Greece and Spain and to inaugurate the euro zone's permanent bailout mechanism, the ESM, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no help.

"Spain needs no aid program. Spain is doing everything necessary, in fiscal policy, in structural reforms," he told reporters as he arrived for a gathering that will also discuss plans to establish a single supervisor for euro zone banks.

"Spain has a problem with its banks as a consequence of the real estate bubble of the past years," he said. "That's why Spain is getting (EU) help with banking recapitalization."

Luxembourg Finance Minister Luc Frieden took the same line but added that if Spain were to make a request for aid beyond the 100 billion euros already earmarked to recapitalize its banks, it would be examined.

"I think we should deal with such a request when it comes, but so far the Spanish government is undertaking reforms which go in the right direction," he said.

Finance ministers agreed in June to provide up to 100 billion euros for Spain's banks, many of which are weighed down with bad property loans and need to be recapitalized.

An independent audit has shown the banks need around 40 billion euros, less than originally expected, a result Austria's finance minister, Maria Fekter, said was positive.

"We have the banking application from Spain," Fekter said. "We are likely to hear today that this 100 billion euros is not all needed, that Spain needs significantly less."

Many in the financial markets are convinced Spain will not be able to meet its sovereign funding needs at an affordable cost without euro zone and European Central Bank support, especially with several of its regions requiring a bailout from Madrid.

A euro zone source said ministers may also discuss Spain's 2013 budget, outlined last month, which the International Monetary Fund and the European Commission both believe is based on an over-optimistic forecast of a 0.5 percent economic contraction next year. The IMF forecast of a 1.2 percent recession may be revised further downwards on Tuesday.

NO MOVES ON GREECE

As well as Spain, ministers will discuss the situation in Greece, where intense negotiations continue between the government and the 'troika' of inspectors from the Commission, the ECB and the IMF over budget cuts for 2013-2014.

But Jean-Claude Juncker, the chairman of the Eurogroup, said no developments on Greece, which has fallen behind on its second bailout program, were likely at least until the troika finishes a report on the country's debt situation. That report is now expected in early November.

"I don't think that we will have any major decisions on Greece," Juncker said. Asked whether a decision on Greece could be expected soon, he replied: "Hope never dies."

Monday's meeting will also discuss plans for the ECB to be given responsibility for supervising all eurozone banks and the idea of creating a single budget for eurozone countries, issues that will be discussed further by eurozone and EU leaders at a summit in Brussels on October 18-19.

But little formal progress is expected, with questions unresolved about how many of the eurozone's 6,000 banks the ECB will be charged with overseeing and whether it will be able to start its new role from January next year.

Instead, the only firm action taken on Monday was the unveiling of the European Stability Mechanism (ESM), a 500 billion euro, rescue mechanism for the 17 euro zone countries.

The ESM, which replaces the temporary EFSF, will be used to lend to distressed euro zone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track.

"The start of the ESM marks a historic milestone in shaping the future of the European monetary union," the fund's chief executive, Klaus Regling, told reporters

"The euro area now is equipped with a permanent and effective firewall, which of course is a crucial component in our strategy to ensure financial stability in the euro zone."

The fund's lending capacity will be based on 80 billion euros of paid-in capital and 620 billion of callable capital, against which the ESM will borrow money on the market to lend it on to governments cut off from sustainable market funding.

From Monday it has a capacity of 200 billion euros and it will reach its full capacity gradually by 2014.

Oct 8, 2012 01:30 PM

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OctaFX.Com - German regulator: "no euro zone bank watchdog until 2014"

FRANKFURT (Reuters) - Plans to establish a euro zone bank regulator by January 1, 2013, may be delayed by a year, Germany's markets regulator said on Tuesday, a potential setback to efforts to help distressed euro zone countries and their banks.

European leaders agreed at the end of June to set up a single supervisor to oversee 6,000 banks in Europe, but Elke Koenig, head of Germany's markets regulator BaFin, said the original deadline to start such supervision was unrealistic.

"I could imagine that we get there in January 2014. That's a guess," she told German television station ARD on Tuesday, adding this was her personal view.

Koenig argued that efforts to centralize supervision should proceed with caution, a view at odds with several euro zone policymakers, but in line with German Finance Minister Wolfgang Schaeuble, who last month objected to giving the ECB sweeping powers.

The speedy establishment of common banking supervision is necessary to pave the way for the direct recapitalization of lenders via the European Stability Mechanism (ESM), a euro zone bailout fund which came into force on Monday.

Propping up weak banks is seen as a way to break the vicious circle linking indebted governments and their troubled lenders. Doubts over the solidity of Spain's finances, for example, are inextricably linked to its weak banking sector.

The Dutch Central Bank said on Tuesday that policymakers should quickly give the European Central Bank the tools to supervise major lenders and to enable the ESM to directly recapitalize troubled banks if shareholders or national governments proved unable.

Germany, the euro zone's economic heavyweight, has criticized efforts to allow the ECB to supervise all euro zone lenders, claiming the ECB will be overstretched.

In reality, the ECB will not be in day-to-day charge of supervision, which will still lie with national and local regulators. But the ECB is expected to leave national supervisors with less wiggle room to adopt special rules designed to protect their home market.

Germany's landesbanken, for example, are currently allowed to keep using a special form of non-voting capital as a way to meet tougher rules on capital safeguards.

The ECB's president Mario Draghi commented on the timetable for creating a new supervisor on Tuesday.

"The ECB is not supposed to take over supervision in three months' time and do it. There is a phase-in time. We foresee that one year will be needed to adapt all the structures," Draghi told the European parliament.

As a first step, the ECB is set to take responsibility for supervising banks which have received state aid beginning 2013. From mid-2013 the ECB will add systemically relevant institutions, before finally overseeing all euro zone banks by 2014.

Upon being asked whether a January deadline for Euro zone bank supervision was realistic, The Bank of France, the Bank of Spain and the Bank of Italy declined to comment.

Gerard Rameix, head of the French markets watchdog AMF, said he had heard nothing to suggest there would be a change to the timeframe. "I think they are playing on words a bit. If they are talking about the utmost end of the process, then they are maybe not wrong," Rameix said.

Late on Monday Koenig said that although she supported the idea of common supervision in principle, she hasn't understood how the transition from national to pan-European supervision will work in practice.

"I support the idea of a strong European regulator. But I have not seen a roadmap of how we get there," she said.

"The last thing we can afford is to have an interregnum between those who are no longer responsible (for supervision) and those who are not yet in a position to act," Koenig said.

Earlier this month ECB policymaker Joerg Asmussen warned that tapping the ESM for direct bank recapitalization will only be possible once supervision has been set up.

And last month, Germany, the Netherlands and Finland insisted that the ESM should not be used to solve "legacy issues", essentially saying that highly indebted banks in Spain, Ireland and Greece will remain the responsibility of those countries' governments.

The Basel Committee on Banking Supervision said last week the EU was failing to apply the Basel III capital requirement rules for banks because it softened up a definition of what qualifies as core capital.

Basel III says it must be common equity capital while Germany has pushed hard to include what some regulators see as less proven financial instruments which are widely used in the German public sector banking arm of Landesbanks.

Oct 9, 2012 12:54 PM

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OctaFX.Com -Eleven euro states back financial transaction tax

LUXEMBOURG/ATHENS (Reuters) - Eleven euro zone countries agreed on Tuesday to press ahead with a disputed tax on financial transactions designed to help pay for the cost of fixing a crisis that has rocked the single currency area.

The initiative, pushed hard by Germany and France but strongly opposed by Britain, Sweden and other free-marketers, gained critical mass at a European Union finance ministers' meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the tax.

The so-called "Tobin tax", first proposed by Nobel-prize winning U.S. economist James Tobin in the 1972 as a way of reducing financial market volatility, has become a political symbol of a widespread desire to make banks, hedge funds and high-frequency traders pay a price for the crisis.

"This is a small step for 11 countries but a giant leap for Europe,"

Austria Deputy Finance Minister Andreas Schieder said.

"The way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis."

The agreement raised the prospect of a pioneer group of European states for the first time launching a joint tax without the unanimous backing of the 27-nation bloc, a move that may fragment the single market for financial services.

EU Tax Commissioner Algirdas Semeta told the meeting the number of states backing the initiative had passed the quorum for so-called "enhanced cooperation", provided some countries turn their oral backing into written commitment.

"I proposed this tax as a source of new revenue from an under-taxed sector, and a means of encouraging more responsible trading,"

Semeta said.

"It would also prevent a patchwork of national bank taxes from creating difficulties for businesses in the Single Market."

However, critics say it could distort that market by giving banks and other traders incentives to shift their trading activities to European financial centers where the tax is not levied, or away from Europe altogether.

"People will arbitrage it. People will find a way around it," said David Stewart, CEO of London-based hedge fund firm Odey Asset Management, which runs around $6.5 billion.

"If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London."

Britain, home to the region's biggest trading centre, will not join the scheme.

Austrian Finance Minister Maria Fekter said the 11 countries would present a model for how the tax would work by the end of the year, and it was realistic to expect the tax to be implemented by 2014.

Semeta said the countries aiming to launch the tax did not yet agree on where the proceeds should go or on what they should be spent.

"Some of them would like to spend it individually. Some of them prefer to use part of the proceeds to finance the EU budget. It is premature to say what will be the final outcome," he said.

The breakthrough was a surprise to many EU diplomats who had thought Germany might fail to convince sufficient countries to join the plan, which has been in the works for two years.

After heavy diplomatic pressure from Berlin overnight, Spain and Italy agreed to support the measure. Slovakia and Estonia said they would throw their weight behind it too.

The European Commission has said a tax on stocks, bonds and derivatives trades from 2014 could raise up to 57 billion euros a year if applied across all countries.

SCANT PROGRESS ELSEWHERE

The agreement was a victory for German Chancellor Angela Merkel on the day she travelled to Athens, epicenter of Europe's debt crisis, to express her support for near-bankrupt Greece staying in the euro zone.

Greek police fired teargas and stun grenades to hold back protesters who accuse Merkel of imposing devastating austerity on their country in exchange for two EU/IMF bailouts that have so far failed to turn the shattered economy around.

"A lot has been accomplished," Merkel said after talks with Prime Minister Antonis Samaras, adding that the tough path Greece is on will pay off if Greeks stay the course.

The financial tax deal masked a distinct lack of progress among finance ministers on other pressing issues facing the euro zone, including whether and when to provide a rescue package for Spain, and what to do about Greece's off-course program.

The 17 euro zone ministers finally inaugurated their 500 billion euro permanent rescue fund on Monday, but danced around the question of how soon it might have to be used.

Ministers insisted Spain was taking the right actions to restore its public finances and did not need a bailout for now, even though many in the financial markets are convinced Madrid will need help within weeks rather than months.

The International Monetary Fund doused several euro zone countries' budget plans, including those of Spain and France, by revising down its 2013 growth forecasts for their economies.

Euro zone peers told Spanish Economy Minister Luis de Guindos that his country's budget cuts should take into account the weakness in the economy as regional policymakers debated whether to let Madrid slacken the pace of its austerity drive.

"The only thing I can say (about the IMF's forecasts for Spain) is to try to avoid that they happen," de Guindos said.

"Logically, we are working on the basis that such negative forecasts are not met," he said.

The ministers also had a "robust" discussion with the IMF about the long-term sustainability of Greece's debt mountain -- a key factor in whether international lenders release an urgently needed next tranche of aid to Athens.

An IMF director told a Dutch newspaper that European countries should consider restructuring the Greek debt they hold if the country's financial burden proves unsustainable.

Diplomats say euro zone governments would prefer to find ways to give Athens more time to meet its fiscal targets and postpone any consideration of official debt restructuring until after next September's German general election.

European Central Bank chief Mario Draghi told the European Parliament the euro zone economy faced a long, uphill road to recovery and the bloc was still suffering a crisis of confidence.

But he said there was no alternative to continued budget cuts.

Oct 9, 2012 02:22 PM

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OctaFX.Com -Strong September NIESR GDP Estimate Fails to Impress British Pound

UPDATE: GBP NIESR Gross Domestic Product Estimate (MoM) (SEP) > +0.8% from +0.1% prior (revised from +0.2%) > GBPUSD NEUTRAL

One European economy is growing at an increasing rate: the United Kingdom. At least, that’s what the National Institute of Economic and Social Research’s September growth estimate showed today, which ticked up to +0.8% quarter-over-quarter from +0.1% q/q in August (quarterly here denotes trailing three-months ending in reporting month; this report estimated growth for July-August-September). For context, this is the single highest NIESR GDP estimate seen since July 2010 (+1.2% q/q). For a calendar quarter, this is the highest reading since the third quarter of 2007.

However, while the headline reading looks great, it is important to consider some one-off occurrences that took place in the middle of the year: the Queen’s Jubilee celebration as well as the London Olympics. These events undoubtedly provided a boost to growth: Bloomberg News suggests that a better guess for growth would be +0.2% or +0.3% q/q.

GBPUSD 1-minute Chart: October 9, 2012

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Accordingly, reaction to the release can be described as tepid at best, with the GBPUSD inching high for a few pips before falling back. The GBPUSD traded at 1.6010 before the release, and was at 1.6014 at the time this report was written.

Oct 9, 2012 02:32 PM

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OctaFX.Com -EU summit to back idea of separate euro zone budget-draft conclusions

BRUSSELS (Reuters) - The euro zone should have its own budget, which would be separate from the long-term budget of the wider European Union, draft conclusions of an EU summit to take place next week said.

"For the euro area, the objective is to move towards an integrated budgetary framework," said the draft conclusions, obtained by Reuters.

"In that context, mechanisms to prevent unsustainable budgetary developments, as well as mechanisms for fiscal solidarity, e.g. via an appropriate fiscal capacity, should be explored," the draft said.

"Such mechanisms would be specific to the euro area and therefore not be covered by the Multiannual Financial Framework," the draft said.

The Multiannual Financial Framework is the European Union's long-term budget which amounts to around 1 percent of the gross domestic product of the 27-nation bloc.

It is used to support the EU's agriculture policy as well as investment in the EU's poorer countries and regions, among others.

The idea of a separate euro zone budget is supported by Germany, but many non-euro zone countries, which now benefit from the funds of the EU-wide budget, are concerned that its creation would diminish the amount of money available to them.

The conclusions also showed that EU leaders would support the idea of euro zone countries entering into contractual agreements with EU institutions to implement reforms.

"The smooth functioning of EMU (the euro zone) for stronger and sustainable economic growth, employment and social cohesion requires stronger coordination, convergence and enforcement of economic policy," the draft conclusions said.

"In this respect, the idea for the euro area Member States to enter into individual arrangements of a contractual nature at the European level on the reforms they commit to undertake and on their implementation should be explored," they said.

Oct 9, 2012 04:24 PM

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OctaFX.Com -Euro Rises Following ECB Bulletin Remarks on OMT Bond Purchases

THE TAKEAWAY: Euro-zone growth is expected to remain weak according to ECB bulletin -> OMT comments reflect Draghi -> Euro trading slightly higher

The European Central Bank said growth in the Euro-area is expected to remain weak, as tensions in certain markets keeps confidence and sentiment down, according to the monthly bulletin from their October meeting. The ECB continued to say that economic indicators confirm the continuation of a weak economy in the third quarter.

The ECB quoted rising energy prices,increases in indirect taxes, and the resulting higher inflation as the reason that the central bank kept rates unchanged in their October meeting. The ECB predicted that inflation will remain above 2% for the rest of 2012, but will drop below 2% in 2013.

The ECB said the decision regarding the OMT has helped relieve certain tensions, but the governments must continue to implement necessary steps. The bulletin stressed the importance of the conditionality of OMT purchases, thereby reflecting Draghi’s statements at the European parliament.

Finally, the ECB supported efforts to implement a single supervisory mechanism for Euro-area banks. The ECB has already begun preparatory work so as to be ready to implement the joint banking supervision.

The Euro rose slightly following the release of the bulleting, possibly on optimism over the implementation of the OMT program. Euro investors may be hoping to see Spain agree to the ECB’s conditions for bond purchases, which could be a step in the direction of a recovery from the debt crisis.

EURUSD is currently trading closer to the key 1.2900 line, where resistance could be found by the 23.6% retracement of the rally that began at the end of July. Support could be provided by the month-long low at 1.2803.

EURUSD 15-minute: October 11, 2012

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Oct 11, 2012 08:48 AM

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OctaFX.Com - Japanese Yen and US Dollar Weaker as Chinese Data Bucks Worries

News was light over the weekend, although data out of Asia proved to be materially important for global investor sentiment. Headed into the weekend, there were two concerns for the week ahead: what will the swath of Chinese data bring; and what will happen in Europe this week with respect to the Spanish bailout?

The first answers regarding China began to trickle in the past few days, with Chinese September trade data showing that Exports increased by more than expected while Imports held steady, allowing for a wider surplus despite forecasts for a narrower one. Alongside headline inflation pressures that continue to trend lower, in both the Consumer and Producer Price Indexes for September, the view that China is headed for a ‘hard landing’ is indeed softening. With the third quarter GDP on tap for this Thursday, we expect Chinese-linked currencies (the Australian and New Zealand Dollars and the Japanese Yen) to see a bit more action in the coming days.

In Europe, it appears that there’s a growing consensus for “more time” for Greece, with reports indicating that Greek Prime Minister Antonis Samaras will agree to new austerity measures with international lenders by this week’s Euro-zone Summit, slated for October 18 to 19. Greek bond yields sank today, so perhaps there is some credibility to these reports.

Also out of Europe has been the ceremonial pre-Summit jawboning from various leaders and institutions, but the outlook is surprisingly dull. In fact, taking a look at bank research this morning, expectations for the Summit this week are “quite low to begin with,” says Deutsche Bank, while JPMorgan’s European political analyst Alex White wrote over the weekend that no significant progress should be expected on Greece or Spain.

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Oct 15, 2012 11:08 AM

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OctaFX.Com - Norway's Housing Boom Could Turn to Bust

Norway, which chose to remain outside the EU and the euro currency, enjoys an enviably stable economy and a booming housing market - but it could be going down the perilous route taken by Spain and Ireland, according to economists and recent analysis.

According to a report by Bank of New York (BNY) Mellon, Norway's housing sector, which has seen prices jump by almost 30 percent since 2006 - could end up replicating a pattern of housing booms and busts seen across the globe, from the U.S. to Japan to Spain and Ireland.

Indeed, Norway's house price rise has been so dramatic that the San Francisco Federal Reserve wrote a paper on the subject in June that made parallels between the lead up to the U.S. housing crisis and the "irrationally exuberant bubble" of Norway's present boom.

Written by an advisor to Norway's central bank (Norges Bank) Marius Jurgilas and San Francisco Fed's senior economist Kevin Lansing, the paper stated that Norwegian property prices are currently 125 percent of the historic price-to-income ratio and around 170 percent of the historic price-to-rent ratio - a full 50 percent above their last major peak 20 years ago.

Home prices continue to rise sharply with the Association of Norwegian Real Estate Brokers (NEF) reporting an 8.1 percent annual increase in August.

Has Anyone in Norway Noticed?

Though the Norwegian Central Bank has warned about long-term risks to the economy from rising housing prices, it has kept interest rates steady at 1.5 percent and suggested that it will keep them at these levels until Spring 2013. It declined to comment on the housing market.

Neil Mellor from BNY Mellon said that Norway's central bank, has neglected its housing market's indomitable price rise by focusing on a monetary policy of low and stable inflation.

"In focussing solely on indices for goods and services, Norges Bank is failing to address some unnerving trends in a sector whose stability is vital to that of the economy as a whole."

"Low interest rates, stable consumer price inflation and booming asset prices combine to form conditions whereby debt is accumulated at a growing rate to levels that contravene conventional rules of thumb pertaining to stability."

Mellor added that as house prices rise, household debt in Norway is also rising.

"In the case of Norway, the ratio of household debt-to-income has risen dramatically over the past decade and currently stands at around 210 percent - well above that seen in the U.S. before its own bust in 2007 (with debt/income at 130 percent)."

The Central Bank of Norway declined to comment, but Mellor insisted that the unrelenting accretion of debt must not be played down or dismissed as an accounting matter.

"The asset price bubbles formed over the past decade were, in essence, down to policy makers suffering from the same illusion of price stability, albeit an illusion formalized by inflation targeting."

Norway's Dangerous Success Story

Robert Shiller, Professor of Economics at Yale University and co-creator of the S&P/Case-Shiller home-price index said that the Norwegian government "should start worrying now".

"This is a reason to expect an unpleasant end to this bubble in Norway. That is what I told them then," Shiller told CNBC on Tuesday, alluding to a presentation he made in the Scandinavian capitals of Oslo, Copenhagen and Stockholm in January in which he warned of the impending housing bust.

Rather than learning from its European neighbor Spain - where a real estate bubble saw home prices rise 44 percent from 2004 to 2008 before the bubble burst, leaving not only eerily empty properties and Spanish ghost towns but domestic banks with billions of bad loans - Norway is letting its economic success go to its head, Shiller said.

"My suspicions are Norwegians are infected with a success story for their own country that makes high home price increases seem plausible to them," a success only aggrandized when compared to its economically ailing euro zone neighbors.

"They feel smug in their superiority with regard to the European crisis. They didn't even join the EU, let alone the euro. They don't have to bail out any irresponsible southern countries. They have North Sea oil. They have low unemployment. [in short] they are doing everything right, and lots of people want to come to Norway."

However, Shiller notes that there is a paradox in the Norwegian success story.

"Norway is just about the last country to expect a housing bubble to appear, at least not a rational bubble, since it has so much empty land."

"If home prices get elevated, there should be a prompt supply response, new houses will be built, bringing prices down, unless there is some kind of political or zoning problem. Even such political problems tend not to last forever. "

Indeed, there have been some calls to raise lending rates and tighten policy.

In August, as household credit grew at an annual rate of some 7.2 percent - the highest rate since February - Norway's Finance Minister Signjoern Johnsen called for lending standards to be tightened, and the NEF called for higher interest rates.

Mellor states that "[Past crises] have taught us that formulating policy on the basis of a narrow range of prices is a recipe for potential instability, and history tells us that it is never "different this time"."

Mellor concludes with a quote from the San Francisco Fed paper on Norway: "History tells us that episodes of sustained rapid credit expansion combined with booming asset prices are almost always followed by periods of financial stress ... Time will tell whether things turn out differently for the Norwegian housing market."

Oct 17, 2012 09:36 AM

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OctaFX.Com - EU leaders meet to chart eurozone future

European leaders will meet in Brussels this week to work on closer ties between eurozone countries that are seen as critical to converting recent progress on fixing the region's debt crisis into a sustainable path to growth.

The summit comes during a period of uneasy calm in global financial markets. Bond yields for troubled euro area governments have declined significantly after the European Central Bank said in September it was ready to buy potentially unlimited amounts of sovereign debt.

Despite signs of progress, investors remain nervous about Greece, where the government and its international creditors continue to negotiate over the latest installment of bailout money for the debt-stricken nation.

Leaders will meet Thursday and Friday to discuss an interim report outlining steps to strengthen the eurozone, including proposed reforms of the banking sector and more integrated budget policies, according to a letter from European Council president Herman Van Rompuy.

Spain has won relief from market pressure thanks to widespread expectations that it will request a formal bailout by seeking a credit line from the newly-activated European Stability Mechanism. This would allow the ECB to start buying its bonds.

Moody's confirmed its investment grade rating on Spain this week, based on an assumption that Madrid will tap the ESM, and reflecting progress on fiscal and banking reform. But it assigned a negative outlook to the rating, underscoring the pressure on eurzone leaders to agree much closer integration.

"Shocks at the euro area level could also have negative repercussions on Spain's rating, for example in the absence of concrete progress in reforming the euro area's fiscal, economic and regulatory institutions," the agency said.

Analysts say Prime Minister Mariano Rajoy will wait at least until after regional elections on Oct. 21 before asking for help from his eurozone partners.

A spokeswoman for the Spanish economy ministry told CNN the government was still considering its options.

Observers say the likelihood of progress at this week's summit is low, following a more substantial agreement announced at the last summit. In a move hailed as a breakthrough, the leaders outlined plans in June to establish a central banking regulator and increase budgetary oversight.

"Expectations are quite low," said Marie Diron, senior economic adviser at Ernst & Young in London. "If there was to be a significant agreement, we would normally hear about it in advance, but it's been very quiet on that front."

While talks in Greece continue, EU leaders are expected to praise the government in Athens for making difficult reforms and taking steps to modernize the deeply depressed Greek economy.

The Greek government is struggling to nail down all of the →11 billion of spending cuts it needs to satisfy the conditions of its bailout. Athens is also reportedly at odds with the IMF over the outlook for the economy and the likelihood it will achieve its deficit reduction targets.

Greek Prime Minister Antonis Samaras is pushing for a two-year extension of the nation's bailout program, which the previous government agreed to in March. In a show of support, German Chancellor Angela Merkel met earlier this month with Samaras in Athens, suggesting that Berlin is softening its stance on Greece.

"A political position has been reached to keep Greece in the eurozone," said Nicholas Spiro, director of London-based consultancy Spiro Sovereign Strategy.

"But nothing is being done to secure Greece's future in the single currency area."

Oct 17, 2012 01:51 PM

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OctaFX.Com - British Pound Forecast to Strengthen versus Yen

GBPJPY – Retail traders are now net-short the British Pound against the Japanese Yen for the first time since September, and the sharp shift in sentiment gives us contrarian signal that the pair may continue to further highs. Short interest has jumped 40 percent since last week, while long interest has fallen by the same amount.

This lines up well with our USDJPY-bullish bias, and indeed it seems as though the Japanese Yen has further room to fall against broader counterparts.

Oct 18, 2012 03:39 PM

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OctaFX.Com - Canadian Dollar Trading Bias Moderates

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USDCAD - The ratio of long to short positions in the USDCAD stands at 2.89 as approximately 74% of traders are long. Yesterday the ratio was 1.97; 66% of open positions were long. In detail, long positions are 12.9% higher than yesterday and 2.7% below levels seen last week. Short positions are 22.8% lower than yesterday and 2.1% above levels seen last week.

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDCAD may continue lower. Current SSI is higher than yesterday and lower from last week. The combination of current sentiment and recent changes gives a further mixed trading bias.

Oct 18, 2012 03:39 PM

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OctaFX.Com -Australian Dollar Forecast Remains Bearish Despite Faster Inflation

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The Australian dollar fell back from a fresh monthly high of 1.0410 as market participants curbed their appetite for risk, but the high-yielding currency may regain its footing next week as price growth in the $1T economy is expected to bounce back in the third quarter. The consumer price report highlights the biggest event risk for the aussie, and we may see a bullish reaction to the print as the headline reading for inflation is expected to increase 1.6% after expanding 1.2% during the three months through June.

However, the policy outlook continues to instill a bearish forecast for the AUDUSD as the Reserve Bank of Australia scales back its fundamental assessment for the region, and we should see the central bank continue to embark on its easing cycle in an effort to encourage a stronger recovery. Indeed. the RBA

Minutes sounded more dovish this time around as the board sees the resource boom peaking ‘a little earlier, and at a somewhat lower level,’ and we should see the central bank continue to target the benchmark interest rate as the softer outlook for growth gives the central bank scope ‘to be a little more accommodative.’ As commercial banks remain reluctant to pass on the RBA’s rate cuts, investors are pricing a 77% chance for another 25bp reduction at the November 5 meeting, while borrowing costs are anticipated to fall by at least 75bp over the next 12-months according to Credit Suisse overnight index swaps. As the interest rate outlook remains tilted to the downside, speculation for additional monetary support should continue to dampen the appeal of the Australian dollar, and the high-yielding currency remains vulnerable to further headwinds as China –

Australia’s largest trading – continues to face a risk for a ‘hard landing.’

Faster price growth in Australia should help to prop up the AUDUSD in the week ahead, but we will maintain a bearish forecast for the pair as it preserves the downward trend carried over from 2011. At the same time, the aussie-dollar appears to be carving out a lower top in October as the exchange rate fails to hold above the 23.6% Fibonacci retracement from the 2010 low to the 2011 high around 1.0370, and we may see the Australian dollar threaten the monthly low (1.0148) should market sentiment deteriorate further.

Oct 20, 2012 03:48 AM

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OctaFX.Com - Canadian Dollar At Risk For Further Losses As BoC Turns Dovish

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The Canadian dollar struggled to hold its ground against its U.S. counterpart, with the USDCAD advancing to a fresh monthly high of 0.9939, and the loonie may face additional headwinds in the days ahead should the Bank of Canada soften its tone to raise the benchmark interest rate from 1.00%. Although the BoC is widely expected to maintain its current policy next week, the fresh batch of central bank rhetoric may dampen the appeal of the loonie as the government sees a slowing recovery in the region.

Indeed, Finance Minister Jim Flaherty warned that the government may reduce its growth forecast as it prepares to release its updated budget, and we may see BoC Governor Mark Carney follow suit amid the ongoing slack in the real economy. As price growth holds near the lowest level since 2010, the central bank should sound more dovish time this around, and Mr. Carney may no longer see scope to withdraw monetary stimulus as growth and inflation tapers off. In turn, the BoC may strike a more neutral tone for monetary policy, and the protracted recovery in the United States – Canada’s largest trading partner – may keep the BoC on the sidelines given the historical ties between the two economies.

According to Credit Suisse overnight index swaps, market participants see the central bank keeping the benchmark interest rate on hold over the next 12-months, and Governor Carney may look to carry the wait-and-see approach into the following year in an effort to further shield the world’s 10th largest economy from external shocks.

As the relative strength index on the USDCAD finally clears interim resistance around the 58 figure, the upside break in the oscillator should pave the way for a higher exchange rate, but the pair may come up against trendline resistance as it maintains the descending channel from June. Nevertheless, should the BoC talk down speculation for a rate hike, the shift in the policy outlook may threaten the bearish trend in the USDCAD, and we will look for a close above the 200-Day SMA (0.9996) to encourage a bullish forecast for the dollar-loonie.

Oct 20, 2012 03:52 AM

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FOREX ANALYSIS: Canadian Dollar Forecast to Decline

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USDCAD –An aggressive shift in forex retail crowd positioning warns that the US Dollar (ticker: USDOLLAR) may be staging a larger rally against the Canadian Dollar.

Retail short interest in the USDCAD surged 61 percent since last week, while long positions are down a comparable 35 percent through the same period.

A positive technical forecast for the USDCAD and a sharp turn in retail sentiment leave us in favor of further gains.

Oct 25, 2012 03:10 PM

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OctaFX.com-FOREX ANALYSIS: Dollar up on signs US economy slowly improving

Dollar rises against euro, yen on signs that the US economy is slowly improving

NEW YORK (AP) -- The dollar is rising against the euro on signs that the U.S. economy is slowly improving.

The Labor Department says that weekly applications for U.S. unemployment benefits fell last week to 369,000. That's consistent with modest hiring.

The Commerce Department says orders for durable goods rose 9.9 percent in September, mostly due to a spike in aircraft orders. And the National Association of Realtors says its index of home sale agreements rose in September.

The euro fell to $1.2954 in afternoon trading from $1.2973 late Wednesday.

In Britain, the government says the country has emerged from a nine-month recession. The British pound rose to $1.6118 from $1.6036

The dollar rose to 80.11 Japanese yen from 79.78 yen.

Oct 25, 2012 04:48 PM

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OctaFX.com-FOREX - Sentiment Buckles Under Heavy Euro After Spanish Downgrades

News Summary: European Central Bank says private companies borrow less in ongoing weak economy

ASIA/EUROPE FOREX NEWS WRAP

CREDIT CRUNCH: The European Central Bank said Thursday that loans to non-bank businesses in the 17-nation eurozone shrank 1.4 percent year-on-year in September, double the contraction reported the month before.

FRACTURE FEARS: The numbers show the economy is struggling despite efforts by the central bank to stimulate credit and calm financial markets fearful that the eurozone might break up.

NEITHER A BORROWER, NOR A LENDER: Businesses see no reason to borrow to invest in expanding production. Meanwhile, banks in some countries have less to lend AS they struggle to recover from losses on real estate loans and on government bonds.

Oct 25, 2012

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OctaFX.Com - FOREX: Japanese Yen to Resume Down Trend on BOJ Stimulus, US Data

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The Japanese Yen marked its largest five-day drop in nine weeks against the US Dollar at the close of trade on Friday. Much of the selloff reflected speculation about an expansion of stimulus efforts from the Bank of Japan at the October 30 policy meeting, with various sources including Morgan Stanley / Mitsubishi UFJ and Nikkei News tossing around a ¥10 trillion yen estimate for the size of the increase.

While Japanese authorities attempted to pour cold water on reports identifying a specific size of a stimulus, they didn’t specifically talk down the possibility of further accommodation in general.

In the context of recent disappointments on the economic data front, this hints that an expansion of asset purchases may indeed be on the horizon.

On the fiscal side of the equation, the government unveiled a ¥750 billion spending package meant to prevent a sharp retrenchment in public-sector spending as officials struggle to reach a deal on financing legislation that would pave the way for continued bond issuance.

The government spends about ¥2.3 trillion per quarter on average however, hinting the modest size of the fiscal boost will not stave off the impact of forced austerity on economic growth for very long.

That seemingly gives the BOJ further encouragement to act.

Besides homegrown headwinds, the Yen continues to face downward pressure from the overall risk appetite landscape.

The currency’s average value continues to show a significant inverse correlation with the S&P 500, meaning it is likely to broadly rise at times of risk aversion and fall when investor sentiment is on the upswing.

That points the spotlight to the US economic calendar as another potential source of Yen volatility, with a busy docket of top-tier event risk including the ISM Manufacturing print and the all-important Employment report on tap.

US economic data has increasingly topped economists’ expectations over recent weeks, feeding hopes that firming growth in the world’s top economy will help offset a slowdown in Asia and a recession in Europe.

Consensus forecasts call for broad-based improvement across most of the week’s headline data releases, suggesting the path of least resistance favors a pickup in risk appetite that amplifies existing domestically-derived Yen selling pressure.

Oct 27, 2012

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FOREX: OctaFX.Com - Dollar Ends Week Unchanged, What Will Force a EURUSD Break Out?

 

  • Dollar Ends Week Unchanged, What Will Force a EURUSD Break Out?
  • Euro Hopes Seek Spain Bailout, Fear Centered on Greece
  • Japanese Yen: Japan’s Fiscal Cliff Could Drive USDJPY to 85, Beyond
  • Canadian Dollar Sensitive to Jobs Data as Policy Wavers
  • New Zealand and Australian Dollar: Rely on Risk Trend, If that Fails Intervention
  • Oil Traders Watch Hurricane Sandy but Supplies Already Topped Off
  • Gold Posts First Three-Week Decline in 13 Months, Next Break 1700?

 

New to FX?Watch thisVideo; For live market updates, visitDailyFX’s Real Time News Feed

Dollar Ends Week Unchanged, What Will Force a EURUSD

Break Out?

With the close this past Friday, the Dow Jones FXCM Dollar Index (ticker = USDollar) closed the week out less than a point from where it opened. In fact, this measure of the currency has progressed less than 0.1 percent through each of the past three weeks. There is no better measure of congestion and indecision. The lack of progress fits the fundamental backdrop of a market that grows increasingly concerned about the outlook for growth, yields and financial stability yet doesn’t deflate risky assets due to unrelenting hope for more stimulus. This lack of conviction has left the S&P 500 with a critical reversal of the most recent phase of its rally from June but without the commitment to build momentum on a move below 1400. Similarly, the same uncertainty has kept EURUSD anchored to congestion between 1.3100 and 1.2825.

If we want to see a clear and lasting move from the dollar – we need a development that plays to its most basic role: ultimate safe haven and liquidity provider. Given the low level of participation in the capital markets (many investors have kept their money on the sidelines due to the extremely low yields and persistent of financial risks), it is rather easy to spur volatility with economic indicators. Yet, turning the tides of sentiment is an order that few of the ordinary indicators and releases can accomplish. The October NFPs due Friday are the pinnacle for scheduled economic data on the US docket; yet its already-lukewarm fundamental impact has been further diminished. We learned this past week that the Fed would not move to increase its stimulus efforts until at least the expiration of the Operation Twist program, and its ‘growth proxy’ role has been diminished by the release of 3Q GDP. That said, the typical slowdown into its release will likely reply.

To break the cycle of indecision and hesitation ahead of never-ending event risk (we can wait for NFPs, then the US election, then the Fiscal Cliff, etc), we need a serious withdrawal of capital from risky exposure or mass influence of sidelined funds into the system. It would be extremely difficult to line up the necessary events to spur lasting rally (another interim stimulus, a move towards permanent fix for the Euro-zone, a turn in growth, slow recovery in benchmark rates, etc), but that doesn’t preclude another temporary rally on another short-term fix. Meanwhile, the backdrop has deteriorated enough that all it would take is the infectious belief that stimulus has reached is limits to spark fear.

Euro Hopes Seek Spain Bailout, Fear Centered on Greece

Europe’s two greatest threats carry opposing high-impact possibilities. While both Greece and Spain can see their situations improve or deteriorate, there is a greater influence over the euro and investor sentiment depending on which way they fall. Considering Spain is the Eurozone’s fourth largest economy, a fully engaged crisis can cause severe problems for the region’s future. However, there are still a number of interim steps that the country would have to go through before the market considered it hopeless. In fact, should Spain ask for a full rescue, it would very likely spur a substantial rally and perhaps even sentiment rally. It wouldn’t solve the underlying issues but it would delay the pain. Alternatively, Greece has passed through too many iterations of rescue for investors to be fooled by temporary measures. Furthermore, the country is struggling just to receive aid to keep running. Amid a lot of data, there is also a Troika-Greece meeting on Monday and Wednesday.

Japanese Yen: Japan’s Fiscal Cliff Could Drive USDJPY to 85, Beyond

The market is well aware of the fiscal shortfalls of Japan, but the country’s troubles on this front have not received as much press (from financial news and traders) as its US counterpart. This was at least partially due to the fact that there was a hard time frame to the United States’ trouble (the Fiscal Cliff that can cut $600 billion from GDP at the end of year) while the world grew accustomed to Japan’s debts. Well, that passive acceptance may come to an end as the government struggles to pass a bill necessary to keep operating. The recently announced stimulus program will tap reserve funds. But, by the end of November – with a scheduled debt sale – the country may run out of cash.

Canadian Dollar Sensitive to Jobs Data as Policy Wavers

Loonie skeptics have long warned that the Canadian economy is facing the same sort of troubling housing bubble and consumer debt that led so many other country’s to crisis. Yet, if it isn’t an immediately pressing problem, why not take advantage of the currency’s relative yield and stability. That ideal mix of safety and return may be coming to an end. Moody’s this past Friday placed six large Canadian banks on downgrade reviews. Next week, we have Canadian employment figures which can further weigh BoC Governor Carney’s concerns about ‘growing risks’.

New Zealand and Australian Dollar: Rely on Risk Trend, If that Fails Intervention

Both the Aussie and kiwi dollars have shown exceptional resilience through a questionable risk environment. Both are investment currencies for global Forex and interest rate traders; but their historically low yields are bolstered by a severe lack of alternative options with positive, real return. Central banks have recognized this and started to diversify into these funds. To offset this stubborn inflow, RBA and RBNZ central bankers are likely hoping that risk aversion drops carry to offer exchange rate relief. If that doesn’t happen, they have to cut rates / intervene.

Oil Traders Watch Hurricane Sandy but Supplies Already Topped Off

Risk aversion and a long building supply-demand imbalance pushed US crude to its lowest close in three months this past week. Having fallen five out of the past six weeks, a clear trend is starting to develop (though futures volume and open interest are dropping). With the speculative appeal of the commodity tarnished, the market recognizes production at 17-year highs. Not even Hurricane Sandy can change that glut.

Gold Posts First Three-Week Decline in 13 Months, Next Break 1700?

The bear trend that began for gold at the beginning of this month just below 1800 is proving just as consistent as the climb that preceded it. The metal is now eyeing 1700 with something that looks like hesitation. A dollar tumble and/or stimulus for Spain are among the few events that can turn this tide. Meanwhile, we are seeing the most consistent bear trend in 13-months, a drop in speculative interest and building volume.

Oct 27, 2012

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OctaFX.Com - Forex Analysis: Dollar Waits for Catalyst as S&P 500 Hints at Rebound

THE TAKEAWAY: The US Dollar has pulled back as prices digest last week’s upward breakout. Traders now look to the S&P 500 for direction cues amid signs of a rebound.

US DOLLAR – Prices continue to retest resistance-turned-support at the upper boundary of a falling channel set from the June 1 high (9897) having broken higher after forming a bullish Piercing Line candlestick pattern.

A rebound sees initial resistance remains at 9963, the 38.2% Fibonacci retracement, with a push above that exposing the 50% Fib at 10032. Alternatively, a drop below support targets rising trend line support at 9859.

Forex_Analysis_Dollar_Waits_for_Catalyst_as_SP_500_Hints_at_Rebound_body_Picture_5.png

Daily Chart - Created Using FXCM Marketscope 2.0

Read more click here

Oct 29, 2012

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Forex News: Euro Rises on Surprising Spanish GDP

THE TAKEAWAY: Spanish GDP drops by 0.3% in Q3, better than expected -> Better GDP could lower expectations for bailout -> Euro rises

The Spanish economy shrank by 0.3% in the third quarter, marking 4 straight quarters of economic contraction.

However the drop in gross domestic product was better than the expected 0.4% decline, as predicted by forex news sources, and better than the previous quarter’s 0.4% drop in GDP. The third quarter saw a 1.6% drop in GDP from Q3 of 2011, according to National Statistics Institute.

Spain is said to be considering a bailout from the EU via the ESM bailout fund, but has thus far resisted asking for the aid. An improving economy could lower our expectations for a Spanish bailout request.

In forex markets, the Euro climbed on the positive economic news, despite its effect on bailout expectations, rising close to 1.2950 against the US Dollar.

EURUSD has since erased those gains following disappointing German employment data. Support could be provided by a rising month-long trend line which is currently near 1.2843.

EURUSD 15-minute: October 30, 2012

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October 30, 2012

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Forex News: Euro Erases Gains on Intense Rise in German Unemployment

THE TAKEAWAY: German unemployment rises by 20,000 in October -> German unemployment rate at 6.9% -> Euro reverses gains

The amount of people looking for work in Germany has increased at the fastest pace in 6 months as the unemployment rate remained at an 11-month high.

The rise in unemployment during October was 20,000 (seasonally adjusted), double the expected 10,000 person rise in those unemployed, and significantly higher than last month’s revised 12 thousand rise in amount of people looking for work.

The unemployment rate remains at 6.9% for the second month, as last month’s rate was revised higher from 6.8%, according to the Federal Labor Agency.

The amount of people out of work in Germany now totals 2.94 million. The German economy has suffered because of the Euro debt crisis, and the GDP only rose 0.3% in the second quarter. Germany is the biggest economy in the Euro and signs of economic suffering are Euro negative in forex markets.

In currency trading, EURUSD erased earlier gains that were made following a Spanish GDP release and retracted from a short term 1.2950 resistance. Support could now be provided by a rising month-long trend line, which is currently near 1.2843.

EURUSD 15-minute: October 30, 2012

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October 30, 2012

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Forex News: Italian Benchmark Bond Prices Soar, and so Does the Euro

Following a meeting in Berlin, France Finance Minister Moscovici and German Finance Minister Schaeuble announced that they are aiming for a solution to Greece by November. They said that they both want to see Greece remain in the Euro-zone, and that the solution will be discussed further in tomorrow’s Euro-group meeting tomorrow.

Schaeuble declined to comment on the size of the funding gap in Greece, but added that they can’t go in the opposite direction on debt reduction. Moscovici said he doesn’t want to reopen the discussion on Euro bonds. Greece has previously said that the government might run out of money by November. The release of these statements had little effect on forex markets.

Obviously, the biggest story of the day is Hurricane Sandy and its impact on the East Coast of the US. Bloomberg is reporting estimates of 20 billion dollars of damages from the hurricane and US stock markets will remain closed today.

The US markets may reopen as soon as tomorrow, and there has been no noticeable effect on currency trading from the hurricane since some early losses to EURUSD on Monday morning.

The big catalyst in today’s trading was the BoJ decision to expand asset purchases. The stimulus expansion barely met expectations and therefore had a positive effect on Yen trading. BoJ’s Shirakawa and a government official speaking after the meeting both agreed that the central bank must continue to act until an end of deflation.

In Spain, the GDP in Q3 was reported to have contracted less than expected and therefore gave a brief boost to the Euro to just a bit short of 1.2950 in trading.

That gain was soon erased by higher than expected unemployment in Germany.

Finally, an Italian bond sale saw a drop in 10-year bond yields to 4.92% from 5.24% in September’s sale. EURUSD bounced back towards 1.2950 following the sale news, where the currency is still trading.

The North American session calendar is light and traders should keep an eye out for updates relating to Greece or any serious changes to damage estimates from the hurricane.

EURUSD Daily: October 30, 2012

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October 30, 2012

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OctaFX.Com - ECB: Loan demand sags in slack eurozone economy

Eurozone central bank reports 'pronounced' fall in demand for loans as businesses hold back

FRANKFURT, Germany (AP) -- The European Central Bank has more dismal numbers about the slack eurozone economy.

The chief monetary authority for the euro reports a "pronounced net decline" in business demand for credit in the third quarter. Its quarterly bank lending survey shows that companies are not asking for money.

Credit shows signs of shrinking even though banks are themselves finding it easier to raise money as the turmoil from the eurozone debt crisis has eased.

The key figure showed a minus 28 percent balance, reflecting the difference between banks reporting more and less loan demand. The figure worsened from 25 percent in the second quarter.

The eurozone economy shrank 0.2 percent in the second quarter and many fear it could sink into recession when third quarter figures come out Nov. 15.

Oct 31, 2012

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OctaFX.Com - ECB: Loan demand sags in slack eurozone economy

Eurozone central bank reports 'pronounced' fall in demand for loans as businesses hold back

Unemployment for the 17 countries that use the euro rose to a record high of 11.6 percent in September.

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Oct 31, 2012

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OctaFX.Com - Forex Analysis: US Dollar Classic Technical Report 11.01.2012

Prices remain wedged between resistance-turned-support at the upper boundary of a falling channel set from the June 1 high (9884) and the 38.2% Fibonacci entrancement at 9963.

A break higher exposes the 50% Fib at 10032. Alternatively, a drop below support targets rising trend line support at 9867.

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Nov 1, 2012

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OctaFX.Com - Forex News: Sterling Rises as UK Construction Activity Expands

THE TAKEAWAY: UK construction PMI for October rises to 50.9 -> Report is very pessimistic despite expansion -> Sterling rises

Following two months of reduction, UK construction activity expanded in October according to Markit’s Purchasing Managers’ Index. The construction PMI was reported at 50.9, beating expectations for an index result of 49 and higher than last month’s 49.5 index result. A PMI result below 50.00 indicates deterioration in activity.

Civil engineering saw a rise in construction output, while residential output was the weakest area of construction, and commercial activity was marginally reduced. New order volumes for construction were lower which led to lower employment in the industry.

Markit’s Senior Economist Tim Moore said that, ‘the bigger picture remains bleak given ongoing falls in new orders alongside renewed job cuts across the sector over the month.’

Yet despite some of the pessimism in the report, Sterling climbed higher in forex trading on the surprising index level. GBPUSD climbed above 1.6100 following the release of the forex news. Resistance could be provided by a two week high around 1.6174.

GBPUSD 15-minute: November 2, 2012

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Nov 2, 2012

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OctaFX.Com - Forex News: The Dollar Roars Back With Jump in NFPs, Eyes Turn to Election

The Takeaway: Greater than expected increase in Non-farm Payrolls >> Improving jobs market removes expectations for further Fed stimulus >> US Dollar Rallies

The October US labor market added an impressive 171k non-farm jobs versus an expected 125k in the final employment report before the November elections. The US dollar gained sharply against all major counterparts, especially the Japanese Yen and gold as signs of an improving economy start to erode expectations for more stimulus from the Federal Reserve.

The report was also a boon for risky assets in other markets, as US and world equity futures as well as crude erased previous losses on the heels of the report.

Today’s report represents the largest gain since the August NFP report, where the labor market added 192k non-farm jobs. The string of large gains since July 2012 along with better consumer confidence further supports expectations that the US economy is improving despite ongoing economic worries in Europe.

The better data is expected to remove expectations for more stimulus in the world’s largest economy, and may bring an early end to the Fed’s QE3 purchases of $40 billion in mortgage backed securities per month. Even with these welcomed improvements, the central bank may not move as quickly to tighten to prevent stepping on the economy too quickly. Boston Federal Reserve President Eric Rosengren stated on Thursday that he supported asset purchases until unemployment fell to 7.25%, and a zero-interest rate policy until the rate dropped to 6.5%. Atlanta Federal Reserve President Dennis Lockhart also hinted at no quick exit from additional asset purchases despite better economic data.

GBPUSD 15-minute: November 2, 2012

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Generated with FXCM Trading Station/Marketscope 2.0. 5 minute chart, vertical line indicates time of data release.

The US dollar rallied against key counterparts after the report. At the time of writing, the US dollar is higher by 0.702% against the Euro, 0.572% against the Japanese yen, 1.10% against gold and 1.51% against silver. Equity futures are gaining on higher risk appetite, with the benchmark S&P500 up by 0.464% at 1430 and Dow Jones Industrial Average mirroring with at 0.311% gain at 13200.

Nov 2, 2012

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  • Dennis#MD changed the title to Financial News And Analysis by Octafx.com

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