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What a German Departure Could Mean for Currency Investors

Jack Crooks

We all remember the term “Grexit.” It was coined when investors began thinking Greece might soon exit the euro zone. Not long after came similar headwinds in Spain. And analysts began talking of Spain possibly leaving the euro zone, too.

At about that time I looked hard at whether Germany might in fact be the first country to bow out. I wondered if they would take their ball and go home. And I wondered if the lackluster potential of Germany’s intra-euro trade partners was worth the headache.

Now …

Others Are Wondering
Those Same Things

I came across an article in the Financial Times this week written by Martin Wolf, who is widely considered to be one of the world’s most influential writers on economics. He was expounding upon a Centre for European Policy Studies (CEPS) working paper suggesting German exposure to its fellow euro-zone members is not as substantial as feared.

Wolf mostly agrees. But Wolf and the CEPS go their separate ways at the bottom line.

You see, Germany holds claims on euro-zone periphery nations. Those claims are driven to some degree by Germany’s current account surplus — the amount they export over the amount they import — and by speculative capital flows. In other words: Germany’s trading partners owe them money. And these trading partners are dumping boatloads of cash into the safety of German assets.

If the claims were based mostly on current account surplus, Germany’s risk would be substantial. But since speculative flows have become a larger part of these claims, Germany could survive if the euro zone fell apart or if they decided to exit.

They would, however, need to carefully manage converting inflows into their new currency, thereby pushing losses on said claims onto the periphery nations via a devalued euro.

Here is the difference between Wolf and CEPS …

CEPS believes fear over German claims are over-exaggerated and suggests Germany should be able to finance and manage euro-zone recovery efforts without taking on undue risk should the euro zone fall apart.

Wolf also believes fears over German claims are over-exaggerated. But he suggests Germany should be able to exit the euro zone instead of dealing with the years of agony in managing euro-zone recovery efforts.

We can’t underestimate the political will of key players in this crisis. Indeed, this is without doubt the highest, and perhaps insurmountable, hurdle. But I think a German exit is looking better and better each day while …

The Euro Zone Is Looking
Worse and Worse Each Day

Will Germany be the first one to exit the euro  zone?
Will Germany be the first one to exit the euro zone?

The IMF continues to scold Greece for not meeting its budget goals. And they continue threatening to withhold the latest promise of bailout funding. The Greek political scene is a mess, and the people aren’t too happy either. But Greece is small potatoes.

Take Spain, where everything is going wrong …

Spanish 10-year note yields are back above 6 percent. Every step above this level adds pressure to Spain’s debt obligations. Capital is rapidly fleeing the banking system. Regional governments are requesting bailout money from the central government. Catalonia, by output the largest of Spain’s 17 autonomous regions, is considering breaking off and seeking independence from Spain.

Italy isn’t in much better shape. France is laying low because they can’t afford assisting the least of these euro-zone countries. The relatively better off countries maintain significantly more exposure to the periphery nations than Germany does.

Still, Germans bear most of the responsibility for bailouts. But remember: there are all kinds of conditions on the ECB bond buying and the upcoming European Stability Mechanism (ESM). It’s already been determined that Germany can’t legally be required to front more cash than what has already been decided.

I suppose we should expect more meetings, more decisions, and more can kicking … to find a solution. We could be talking years of this stuff. And for what end? It changes nothing.

Is the Captive Market
Worth the Pain?

Clearly, Germany has made hay off of the common currency. It’s had a captive market to sell its goods. Many would question why Germany would exit the euro and forfeit this advantage.

A reasonable question. But the market seems to be forcing a slow, painful rebalancing anyway. The acquired mercantilist policy Germany lucked into is losing its appeal.

Germans are quick to tout the discipline, dedication, and financial prudence of their countrymen. I won’t disagree. But consider where they are now:

  • The pace of real disposable income growth is slow; wage growth is stagnant.
  • Consumption growth is also slow.
  • Productivity is not significantly increasing relative to some other developed economies.
  • Fiscal austerity is keeping demand constrained.

There is nothing inherently wrong with the above bullets taken in isolation. In fact, I very much respect a producer-oriented culture instead of a consumer-oriented one.

But at a time when the end result of prosperity is slowly slipping out of reach for a growing percentage of the population, expect a change. Enter the policymaking superheroes. It is time for them to swoop in and promise a better standard of living for Germans.

If they don’t, they’ll eventually be up against potentially higher inflation, a loss of productivity, risky claims on external surpluses, and growing bailout obligations to euro-zone members mired in prolonged recessions.

A German Exit Leads the Way …
to Competitiveness

A German exit means Germany abandons the euro and adopts its own national currency, say the deutschemark. Since Germany’s economy is far more solid than remaining euro-zone members, the deutschemark would appreciate relative to the euro.

A stronger deutschemark brings about a higher standard of living in Germany. It helps them avoid inflation and better balance their economy.

A cheaper euro makes the producers in periphery nations more competitive. That then gives them a growth outlet to escape more quickly the grip of deflationary recession.

Seems like a decent compromise.

If things stay as they are now, the periphery becomes desperate for German assistance; Germany becomes insistent upon the periphery forfeiting sovereignty; at best, the current economic imbalances are perpetuated and lead to deeper recession for the periphery as well as greater internal and external headaches for Germany.

So is it time for Germany to go?

We’ll have to wait and see. But if Germany goes, there is no doubt in my mind that the euro will fall off a cliff … a very deep one.

Best wishes,



Why QE3 will fail, and why that may be very good for the U.S. dollar

by Jack Crooks

Jack Crooks

It seems to me the Great Depression has cast a long dark shadow over Fed Chairman Ben Bernanke’s thinking. The man seems obsessed by the idea, based on his own historical research that if the Fed had just done “more” the Great Depression could have been avoided.

I think he is dead wrong. And in fact it was the Fed that, through money and credit manipulation, set the stage that caused the Great Depression.

Mr. Bernanke gave a summary of why he believes the Fed was at fault for allowing the depression to become “Great” in a speech he gave back in 2004, “Money, Gold, and the Great Depression.” This speech provides an excellent insight into Mr. Bernanke’s core beliefs. Here are a few key excerpts:

During the first decades after the Depression, most economists looked to developments on the real side of the economy for explanations, rather than to monetary factors. Some argued, for example, that overinvestment and overbuilding had taken place during the ebullient 1920s, leading to a crash when the returns on those investments proved to be less than expected.

… To support their view that monetary forces caused the Great Depression, Friedman and Schwartz revisited the historical record and identified a series of errors—errors of both commission and omission—made by the Federal Reserve in the late 1920s and early 1930s. According to Friedman and Schwartz, each of these policy mistakes led to an undesirable tightening of monetary policy, as reflected in sharp declines in the money supply. Drawing on their historical evidence about the effects of money on the economy, Friedman and Schwartz argued that the declines in the money stock generated by Fed actions—or inactions—could account for the drops in prices and output that subsequently occurred.

… The transmission of monetary tightening through the gold standard also addresses the question of whether changes in the money supply helped cause the Depression or were simply a passive response to the declines in income and prices. Countries on the gold standard were often forced to contract their money supplies because of policy developments in other countries, not because of domestic events. The fact that these contractions in money supplies were invariably followed by declines in output and prices suggests that money was more a cause than an effect of the economic collapse in those countries.

This is a powerful defense for monetary easing. But by any measure, it seems that goal of increasing money and monetary supply to cure economic ills has already been achieved by Mr. Bernanke and Company. And they are fighting a losing battle.

As you can see in the chart below, bank reserves are in the ozone.

Chart 1

What’s more, the money supply is still trending higher …

Chart 2

But all that money is NOT stimulating the economy! The plunging rate Americans are spending is clearly shown in the following chart. I believe this drop is due to changing consumption/savings patterns as U.S. consumers attempt to recover from this serious balance sheet recession, similar to the experience of the Great Depression.

Chart 3

And so far, historically low interest rates by the industrial world central banks haven’t done diddlysquat for the unemployed.

Chart 4

Simply put, Mr. Bernanke must fix the plumbing before any amount of money is going to improve the real economy! The mechanism that transmits credit into the real economy is broken. And pushing rates lower only exacerbates the problem domestically and creates monetary tensions overseas.

What It Means for the Dollar

At first blush all this quantitative easing looks very bad for the U.S. dollar. And it has been to a large degree. But because QE3 actually retards the ability of the real economy in the U.S. to grow, it has a massive negative feedback on Europe and China; both require strong U.S. demand to export.

So in a sense, a very bad sense, QE3 may be very good for the U.S. dollar as it will likely trigger a major change in risk appetite for global assets markets. And that could happen once sentiment shifts and people realize that history shows there is much more to reviving a complex system such as the global economy than through pure money and credit manipulation.

And at some point, the liquidity-driven financial markets will reflect the very poor conditions of the underlying real economy here and abroad.

Best wishes,



How Long Will the Dollar Remain the World’s Reserve Currency?

green dollar sign

We frequently hear the financial press refer to the U.S. dollar as the “world’s reserve currency,” implying that our dollar will always retain its value in an ever shifting world economy.  But this is a dangerous and mistaken assumption.

Since August 15, 1971, when President Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold, the U.S. dollar has operated as a pure fiat currency.  This means the dollar became an article of faith in the continued stability and might of the U.S. government.

In essence, we declared our insolvency in 1971.   Everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it– not even a pretense of gold convertibility! Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC in the 1970s to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence backed the dollar with oil.

In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite radical Islamic movements among those who resented our influence in the region. The arrangement also gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as the dollar flourished.

In 2003, however, Iran began pricing its oil exports in Euro for Asian and European buyers.  The Iranian government also opened an oil bourse in 2008 on the island of Kish in the Persian Gulf for the express purpose of trading oil in Euro and other currencies. In 2009 Iran completely ceased any oil transactions in U.S. dollars.  These actions by the second largest OPEC oil producer pose a direct threat to the continued status of our dollar as the world’s reserve currency, a threat which partially explains our ongoing hostility toward Tehran.

While the erosion of our petrodollar agreement with OPEC certainly threatens the dollar’s status in the Middle East, an even larger threat resides in the Far East.  Our greatest benefactors for the last twenty years– Asian central banks– have lost their appetite for holding U.S. dollars.  China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever.  Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency.

If we act now to replace the fiat system with a stable dollar backed by precious metals or commodities, the dollar can regain its status as the safest store of value among all government currencies.  If not, the rest of the world will abandon the dollar as the global reserve currency.

Both Congress and American consumers will then find borrowing a dramatically more expensive proposition. Remember, our entire consumption economy is based on the willingness of foreigners to hold U.S. debt.  We face a reordering of the entire world economy if the federal government cannot print, borrow, and spend money at a rate that satisfies its endless appetite for deficit spending.

Ron Paul

Is the Yuan Ready for Prime Time?

by Jack Crooks
Saturday, April 21, 2012 at 7:30am

Jack Crooks

Many commentators who follow the global markets were very excited on the recent announcement that China would “widen the trade band” for its currency.

The People’s Bank of China, China’s central bank, said it would allow the yuan to trade up to 1 percent on either side of a midpoint price it sets every trading day. Previously the currency was allowed to fluctuate 0.5 percent.

Some were so overwhelmed, they pronounced this must be proof positive China is not headed for a hard economic landing, and soon its currency will be replacing the dollar as global reserve currency. That is a bit of hyperbole, to say the least.

If the Chinese currency is going to lift the Chinese economy out of trouble, it will take a lot more than a 1 percent change in the trading band. The country requires a major restructuring of its growth model, to which its currency is only one component; albeit a very important one. The belief that this move is a reflection of the fact the yuan will displace the dollar in the near future seems farcical.

China’s Desire for World Status

I don’t think there is any doubt that China would someday love to attain world reserve currency status with the yuan. And indeed, they have taken some minor steps in the process of internationalizing their currency.

For example, China has established currency swap arrangements with some of its key trading partners, so both countries can bypass the U.S. dollar. It has also allowed a Chinese yuan Hong Kong deposit to be created; it trades freely in Hong Kong. And then there is the widened trading band, which I discussed at the beginning.

These actions, plus their general disgust with being locked into the U.S. dollar reserve system (the U.S. Treasury/Federal Reserve implicit weaker dollar policy means China must pay more for imported commodities as most currencies are priced in dollars), means China would jump at the chance to have an alternative.

Given the dismal status of the global monetary system, China isn’t the only one unhappy with the U.S. dollar as the global reserve currency. But if history is any guide, shifts in the global monetary system take much longer than we expect …

One reason is because they are haphazard. Changes in global monetary status morph, or at least it has been that way historically. All we have to do is watch the G-20 to see how difficult serious, multi-global planning can be …

The handoff from pound Sterling to the U.S. dollar was an unplanned evolving event that accelerated after WWI.

And there was no great planning when President Richard Nixon took us off the gold standard, which ushered in the error of floating rate currencies. The gold was draining out of Fort Knox, something had to be done. Game over. Dirty float for a couple of years, then no pretense whatsoever of anything backing the currencies of the world’s major powers. Just faith in governments to repay!

>From that point onward it was clear to all that money was not a store of value, but simply a unit of exchange once it became de-linked from real value.

So it leaves us where we are: Stuck with a global system of money that can be created and destroyed at the whim of governments and central bankers with the U.S. dollar the core of the system.

It’s no wonder many are looking for something better.

But even if the Chinese yuan is something better (I don’t believe it is), let me explore the myth that …

The Chinese Currency Will
Soon Replace the Buck

Rather than turn this into a LONG essay, I will break it down into seven bite-size chunks — the reasons why I think the Chinese yuan is a very long way from world reserve currency status.

Reason #1—
Size isn’t everything

It is never as simple as “the world reserve currency goes to the country with the largest global GDP.” The U.S. surpassed the U.K. in terms of total GDP back in the 1870s. Yet pound Sterling remained the reserve currency for another 40 years or so.

Reason #2—
Wrong growth model

Remember, the world reserve currency country is saddled with a consistent current account deficit. Thus, China must push out trillions of renminbi and renminbi-based assets into the world economy. Fine if your model is open and based on consumption. Not so good if it is driven primarily by exports, as China’s is. So we will need to see a big shift in China’s growth model. That will be a wrenching long-term process.

Reason #3—
Lack of free market capitalism

The reserve currency country must open its market to allow foreign investors to hold local assets. This means China will have to make a complete change to its current political structure to allow much more freedoms for citizens (not only allow money to flow in, but allow its citizens money to flow out freely).

The system in place is not something that is likely to change anytime soon despite the window dressing. The communist party still maintains absolute power, even though comments from visitors claim there was free market capitalism during their trip to the Orwellian Hall of Mirrors. It shows just how well the central committee is doing its job.

The West in general is duped by the Chinese leadership. If you want a better insight into this issue, I strongly suggest you read, The Party: The Secret World of China’s Communist Rulers, by Richard McGregor.

The latest scandal regarding the powerful Bo Xiang and the death of a British businessman, highlights the fact the Chinese leadership is less than meets the eye.

Reason #4—
The U.S. is becoming wealthier
relative to China

Say what? All true. The fact is that the average Chinese citizen is more than $17,000 poorer relative to the average American than he was in 1991. Per capita income for relatively large states is the best single determinant of competitiveness long term. So until this trend changes, it is highly unlikely the U.S. will give up the mantle of currency reserve status.

Reason #5—
Low projections

Even optimistic assumptions from those who should know, assuming China’s growth remains on track, suggest by 2035 up to 12 percent of global reserves may be held in yuan. Indeed, a far cry from world reserves status.

Reason #6—
China’s debt bomb

Officially, all is good. But unofficially, China may be facing its own debt bomb that could dampen growth for years, not just one or two quarters. Never say never … it happened to Japan.

According to Reuters Breakingviews,

“The government’s official debt is only 15 percent of GDP, but it adds up quickly. Ratings agency Fitch estimates a bailout could cost 20 percent of GDP. Add the unpaid cost of the last bailout, debts at state-owned entities, local governments and pension liabilities, and a Breakingviews calculation suggests Beijing’s debt rises to roughly 130 percent of GDP.”

Reason #7—
Offshore deposits may backfire!

The current attempts at internationalization of the yuan seem backwards. Normally a country opens its capital account and upgrades its domestic financial system before attempting to internationalize its currency. Instead China is offering bi-lateral exchange deals with some trade partners, and that gets a lot of press.

But that seems to be mere window dressing as countries are really taking up the credit China is offering. And the developing offshore yuan deposits in Hong Kong may actually backfire, as the unofficial yuan rate in Hong Kong (CNH) is fluctuating around the official rate in China (CNY). This may force China’s central bank to actually hold more dollars.


China’s decision to widen the trading band on its currency is a step in the right direction. But it doesn’t mean the yuan will be a real challenger to the dollar anytime soon.

So as far as I’m concerned, the myth that the yuan will soon replace the dollar as the world’s reserve currency is clearly busted.

My advice: Don’t get caught up in the hype. It will be a long time before the Chinese currency is allowed to fluctuate much against the U.S. dollar. If you want action in the currency markets, the yuan is not the place to be.

Best wishes,



2012 Currency Investment Predictions

Balance of volatility is the key to unlocking profits in the foreign exchange market; too little and your returns are scant, too much and you could get caught out and lose everything.

Recent months have seen extreme swings in the markets with previous safe havens no longer offering sanctuary for investors and economies that promised so much failing to deliver.

New Markets

With global growth so stunted, procuring a return has become increasingly difficult for foreign exchange traders, particularly with the US dollar and euro both struggling to combat the effects of the debt crisis and fiscal weakness. It has become increasingly difficult to trade profitably in developed economies, with many investors turning their attention to emerging markets instead.

Brazil was originally considered as a very viable alternative with its political climate one of the steadiest in Latin America. However, the surge in demand for its currency has led to the government taking active steps to tamper its climb and means that it no longer offers a substantially high yield.

The price of oil has continued to climb in 2011 and remains elevated, with no sign of a retracement. While some developed countries whose economy is strongly linked to the oil, such as the US, may not be the right vehicle of choice, their partners may be worth considering.

Thinking Globally

Canada is a good example and as the United States’ close neighbor, it benefits from close trading links while remaining separate from many of the problems the world’s super-power has experienced. Canada has a huge reserve of minerals and commodities and a stable economy with a much smaller deficit (in 2010 it had a trade balance of just -$8.7 billion), a fact that has led many experts to tip the Canadian dollar as one to watch. It has also retained the top-notch credit rating of AAA.

Another good oil-related currency and also suitable alternative to the Brazilian real could be the Mexican peso. Mexico supplies the second largest amount of crude oil in the world and its economy depends on the commodity. The country has a trade deficit of just $3 billion and a debt equivalent to just 37%.

The Russian Ruble has also drawn a significant amount of attention, with some sources suggesting a pairing with the euro. The Russian economy has a debt equivalent to just 9% of GDP, compared to 63% for the US and has strong commodity exports. The economy is expected to outperform all other nations in Central and Eastern Europe, as well as the Middle East and Africa, with predictions around 5%. The current central bank leaders are also expected to boost foreign exchange by relaxing their tight grip on rates during 2012.

The South Korean won is a currency tipped by some experts, with the country holding a trade surplus, controlled inflation and low debts, equivalent to just 23% of GDP. The country has a strong credit rating with all of the top agencies and is a major exporter.

However, there have also been concerns over the political instability of the country, with the ongoing hostilities with its close neighbor, North Korea always a concern. With the recent death of North Korea’s dictatorial leader, Kim Jong-Il and the subsequent appointment of his youngest and very inexperienced son, Kim Jong-un, there are some uncertainties about whether the fragile balance between the two warring nations will be disturbed. The current uncertainty over the political climate in North Korea may well mean that the South Korean won gains could be capped or short-lived.

Experts in foreign exchange have suggested that 2012 may not be as tumultuous as 2011, but there is no doubt that in order to make a significant gain, emerging markets should be considered. While they attract a much higher level of risk, developed economies, as a general rule, are being thumped much harder by the instability in the global economy and gains could be pared.

Dukascopy Afternoon Forex Overview

Dukascopy Bank SA

Dukascopy Fundamental Analysis

Nicolas Sarkozy, France’s President, said that the country may consider withdrawing for Schengen zone unless more efforts are put in stopping illegal immigration. Sarkozy speaking at President’s election rally stressed that the progress has to be made during next 12 months otherwise France will exit Schengen zone. Illegal immigration is expected to be the core issue during elections in France.


Crude oil futures eased down during the Asian session on Monday as traders started to cash out from the market after crude oil moved higher on the positive US labour data. Light, sweet crude oil futures for April delivery traded at 106.92 US Dollars per barrel on the New York Mercantile Exchange, tumbling.


According to Lloyds Bank Corporate Markets, concern of losing their jobs has been decreasing among Britons for the second month in the row. Job security index gaied 2 points in February, currently standing at -22 points. Bankers believe the labour market has still a long way to go to reach the pre-crisis levels of job security.


The official SNB exchange rate for EUR/CHF is 1.2057 today; yield on 10-year Swiss Confederation bonds decreased to 0.72%. 3-month LIBOR CHF stands at 0.09%, and is within the target range of 0.00-0.25%. Swiss SMI stock index has lost 0.04% since the opening bell, and is currently fluctuating around 6185 points.


Japan’s Nikkei Stock Average retreated after gains in previous two sessions as Yen appreciated and China reported a record high trade shortfall in February. Nikkei 225 index edged 0.4% or 39.88 points down to 9,889.86 with eight of ten industries posting losses. Nippon Paper Group led the drop among paper firms on a report which showed the wholesale prices of high-quality paper fell. Panasonic added 0.7% on news it plans to increase its sales of appliances by the end of March 2016.

Dukascopy Technical Analysis

Daily maximum: 1.3135
Daily minimum: 1.3078
The single currency depreciated today versus the greenback after the Greece completed the biggest sovereign debt restructuring in history. Daily Resistance: 1.3235; 1.3347; 1.3416. Daily Support: 1.3054; 1.2985; 1.2873. Daily Bias: Strongly bearish.


Daily maximum: 108.14
Daily minimum: 107.5
EUR/JPY slipped slightly today, breaching the daily pivot point at 108.18. Daily Resistance: 108.66; 109.13; 109.61. Daily Support: 107.71; 107.23; 106.76. Daily Bias: Bearish.


Daily maximum: 1.5695
Daily minimum: 1.5606
The British pound fell against the US dollar, heading towars a support level at 1.5551. Daily Resistance: 1.5779; 1.5891; 1.5949. Daily Support: 1.5609; 1.5551; 1.5439. Daily Bias: Strongly bearish.


Daily maximum: 82.43
Daily minimum: 82.11
USD/JPY declined for a second day, after rising sharply by 87 peeps on Friday. Daily Resistance: 82.90; 83.35; 84.07. Daily Support: 81.73; 81.01; 80.56. Daily Bias: Bullish.


Daily maximum: 0.9218
Daily minimum: 0.9178
USD/CHF Monday slid modestly towards the support level at 0.9106; technical indicators suggest the pair is likely to recover in the short-term. Daily Resistance: 0.9235; 0.9285; 0.9364. Daily Support: 0.9106; 0.9027; 0.8977. Daily Bias: Strongly bullish.

Press Review

Euro zone ministers to sign off Greek cash, grill Spain
Euro zone finance ministers will sign off on a second bailout for Greece on Monday and shift their focus to Spain, whose government looks set to violate newly agreed EU budget rules by missing its deficit target again this year.


U.S. stock indexes pause after win streak
U.S. stocks were roughly flat Monday following a three-session rise as Europe readied to seal Greece’s rescue package and after China reported a large monthly trade deficit.

Asia & Pacific

Japan Machinery Orders Beat Expectations
Japanese core machinery orders rose more than expected in January from the previous month, a bright sign for economic growth in the first quarter of the year as a pickup in global trade and demand related to disaster reconstruction are beginning to spur growth at home.

Dukascopy Morning Forex Overview

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Dukascopy Fundamental Analysis

“The debt-swap results show that international markets see the prospects the Greek economy has to regain a sustainable fiscal situation”
– Evangelos Venizelos, Greek Finance Minister
Greece pushed through the bond swap offer averting the immediate threat of an uncontrolled default and opening the way for a second rescue package.


“The labor market has found its legs in the last few months, and it looks like there’s enough of a broad base that the momentum can be sustained”
– Julia Coronado, chief economist for North America at BNP Paribas
Employment grew for a third consecutive month in February, a sign the economic recovery is gaining momentum. Employers added 227,000 jobs to their payrolls, the Labor Department said on Friday, while the unemployment remained unchanged at 8.3 per cent.


“Manufacturing is past the worst that we saw in the second half of 2011, but it’s still in a very difficult situation”
– Howard Archer, chief European economist at IHS Global Insight
U.K. manufacturing output rose less than expected in January, said the Office for National Statistics on Thursday. Factory output gained 0.1 per cent from December, a sign the economy is still facing headwinds.

“The worst case scenario of a disorderly default has been cast aside, and this is a relief for the market”
– Benoit Peloille, equity-market strategist at Natixis
The Swiss blue-chip index SMI, a measure of the largest and most actively trad ed companies, gained 0.56%, or 34.58 points, to 6,188.51. The broader Swiss Performance Index rose 0.61%, or 34.66 points, to 5,681.28.

“It’s big that Greece is becoming less of a drag as the global economy rebounds”
– Kazuyuki Terao, chief investment officer of RCM Japan Co
“It’s big that Greece is becoming less of a drag as the global economy rebounds,” said Kazuyuki Terao, chief investment officer of RCM Japan Co.

Dukascopy Technical Analysis

“We’re getting steady improvement in the U.S. while the European economic situation remains challenging”
– Wells Fargo (based on CNBC)
Being that EUR/USD’s growth will be halted by resistances located at 1.3285/91, 1.3325 and 1.3389, the outlook remains negative. The initial target lies at 1.2974/54, while a long-term goal is at 1.2624.


“The worst case scenario of a disorderly [Greek] default has been cast aside, and this is a relief for the market But the long-term solvency question remains”
– Natixis (based on Bloomberg)
Despite a recent failure of EUR/JPY near 108.75, formidable support at 106.37 should manage to contain dips. Afterwards we are likely to observe a recovery of the pair from the latter level. Rally should be able to extend beyond 108.75, up to 109.32/58 (55 week ma).


“We expect cable to trade in the $1.57-$1.60 band”
– RWC Capital (based on Reuters)
A strong support situated at 1.5876 (200 day ma) is expected to continue to cap the price from above, while the bias of the Cable remains bearish. In the short-term 1.5650/43 is in focus, followed by 1.5581 and 1.5500.


“The downside risk to U.S. growth is fairly limited from here”
– Russell Investment Group (based on Bloomberg)
As long as a key support at 80.86 is not violated, USD/JPY is likely to carry on advancing. The pair has already overcome 82.23 and should reach 83.80 soon enough. Within a longer time span, 85.53 and 86.80 are expected to be attained.


“Tuesday’s retail sales could revive more QE3 talk, especially if the data is weaker than expected”
USD/CHF currency couple is currently gaining bullish momentum, as it is being supported by strong levels at 0.9088/66 and 0.8931. The initial target lies at 0.9246 (55 day ma), which guards 0.9317.

Press Review

Greece Now Has ‘New Starting Point’: Greek FinMin
After its second bailout was secured on Friday, Greece has been given a “new starting point” to try and restore its struggling economy to health, Greek Finance Minister Evangelos Venizelos told CNBC.


Shares pause after U.S. jobs, monetary policy in focus
Asian shares fell on Monday as investors paused to assess the effect of strong U.S. jobs data, which scaled back expectations of more easing ahead of this week’s Federal Reserve meeting, while uncertainty over Chinese growth also weighed on sentiment.

Asia & Pacific

China reports large trade deficit as imports surge
China posted its largest trade deficit in at least a decade in February after imports of commodities jumped as companies built up supplies.

Dukascopy Afternoon Forex Overview

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Dukascopy Fundamental Analysis

Germany’s factory orders unexpectedly slipped in January as overseas demand for machinery and similar investment goods fell. Factory orders lost 2.7% compared to a 1.6% gain in December, said Economy Ministry. Economists questioned by Bloomberg earlier predicted an 0.6% increase. On yearly basis orders have dropped 4.9%. Euro erased morning gains on report.


Republican Mitt Romney, ex-governor of Massachusetts won the primary presidential election in Ohio. Romney gained 38% of votes, followed by former Senator of Pennsylvania Rick Santorum with 37%, Speaker of US house Newt Gingrich with 15% and US Representative Ron Paul with 9% support.


After a rapid drop of 1.9% in previous session, British FTSE 100 index retreated and climbed 0.5% on Wednesday as investors awaited results of a Greek debt swap agreement. Mining sectors recovered from losses with Kazakhmys PLC adding 2.6% and Eurasian Natural Resources Corp gaining 2.3%. Admiral Group PLC jumped 10% on better than expected pre-tax profit for 2011.


Swiss unemployment rate was stable in February for the third month in line, reported the Swiss State Secretariat for Economic Affairs. The jobless rate remained at 3.1% on a seasonally adjusted basis last month, being in compliance with expectations. However, the number of individuals without job increased slightly by 1,163, approaching 133,154.


Japanese Yen kept appreciating versus its main counterparts on Wednesday as weaker Asian stock markets and investor lack of confidence about Greece’s ability to finalize debt swap agreement bolstered demand for safer currency. The Yen strengthened against the Euro to JPY 106.01 in Asian trade and added 0.3% versus US Dollar to JPY 80.67. Currently EUR/JPY is trading at JPY 106.22 and USD/JPY is trading at JPY 80.77.

Dukascopy Technical Analysis

Daily maximum: 1.3163
Daily minimum: 1.3100
The single European currency slumped further today versus the US dollar as German monthly factory orders fell more than expected (-2.7% act./0.6% est.). Daily Resistance: 1.3191; 1.3391; 1.3947. Daily Support: 1.3069; 1.2990; 1.2725. Daily Bias: Strongly bearish.


Daily maximum: 106.39
Daily minimum: 105.71
The pair continued moving downwards today after touching the daily forecast mean (106.39) as uncertainty over the Greek debt swap persists. Daily Resistance: 107.40; 109.17; 112.29. Daily Support: 105.18; 104.07; 101.58. Daily Bias: Strongly bearish.


Daily maximum: 1.5758
Daily minimum: 1.5698
The Cable traded under a bearish momentum as the pair retail sales rose for the second month in a row in UK. Daily Resistance: 1.5833; 1.5948; 1.6057. Daily Support: 1.5648; 1.5562; 1.5503. Daily Bias: Strongly bearish.


Daily maximum: 80.96
Daily minimum: 80.59
Japan’s yen appreciated today on rumors the Bank of Japan is going to intervene to support local exporters, leaving the 80.98 intact today. Daily Resistance: 81.45; 82.31; 83.19. Daily Support: 80.45; 79.31; 77.55. Daily Bias: Neutral.


Daily maximum: 0.9200
Daily minimum: 0.9159
The pair pierced the daily forecast mean (0.9171) as ADP non-farm payrolls rose more than expected (216K act./204K est.). Daily Resistance: 0.9217; 0.9290; 0.9460. Daily Support: 0.9135; 0.9005; 0.8883. Daily Bias: Bullish.

Press Review

Greek bond swap prospects lifted by pledges
Major banks and pension funds threw their weight behind Greece’s bond swap offer to private creditors on Wednesday, raising the likelihood that the deal will go through and a 130 billion euro international bailout package would be secured.


Productivity in U.S. Cools as Labor Costs Jump
The productivity of U.S. workers rose at a slower pace in the fourth quarter and labor costs jumped, indicating businesses are reaching the limit of wringing efficiency from their workforce.

Asia & Pacific

RBA Could Cut Rates If Jobs Data Also Disappoint
With Australia’s 2011 fourth quarter GDP growth coming in well below market expectations, analysts tell CNBC there’s increasing pressure on the country’s central bank to cut interest rates if Thursday’s unemployment numbers also disappoint.