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FX Weekly Report: Greece Debt Continues to Drive Market Volatility |
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Monday, 20 February 2012Markets remained on edge in a week characterized by extremely volatile trading conditions driven by developments emanating out of Europe. Sentiments see-sawed throughout the week as European and Greek leaders went back and forth on Greece's austerity measures and the nation's spiraling debt imbalances in an effort to thrash out a second bailout package worth €130 billion.
By Gaurav Kashyap, Head of DGCX Desk, Alpari ME DMCC
With no confirmation of a deal by the close of trading on Friday, the markets remained on edge and now look to Monday for a confirmation of the second bailout. Despite the negative wave of event risk originating from Europe, the Euro dropped just 0.50% against the US Dollar and 0.80% against the British Pound.
The notable performance on the week was that of the Japanese Yen. In normal circumstances, the safe-haven Japanese Yen would thrive in a week which was driven by the risk-off trade, however the extension of Japan's stimulus package saw the Yen shedding 2.56% against the Greenback, 2.88% against the British Pound and 2.04% against the Euro.
New Greek austerity measures fail to bolster confidence
The week kicked off with the Greek parliament announcing additional, deeper measures required following a canceled meeting by European Finance Minister on February 9th. The highlights of Greece's plan included a combination of sweeping structural reforms (in the way of large reductions in public sector payrolls, a €50 billion privatization plan, reformation of the tax system and adjustments to the health care and pension system), further fiscal consolidation of the deficit, stricter oversight of the financial sector (increased capital adequacy requirements) and further growth enhancing measures such as reducing the legal minimum wage by more than 20%.
Despite the deeper cuts, the scheduled Euro FinMin meeting on February 15th was scrapped altogether at the last minute and replaced by a teleconference instead sparking doubts about Europe's confidence in Greece's latest measures.
The news that the meeting would be postponed
until Monday February 20th, sparked a selling frenzy in Euro crosses and higher yielding assets, taking the Euro below 1.3000 levels against the US Dollar and below 0.8300 levels against the British Pound. With European leaders sucking out all confidence from the markets regarding the second bailout, the Euro was all set to spiral further into peril until unconfirmed reports on Thursday stated that Europe was considering reducing interest rates charged to Greece with the ECB set to fill any gap in the bailout program. The renewed optimism that a Greek deal was on the way come Monday saw the Euro pare some of its losses from earlier in the week to close at 1.3139 against the US Dollar.
Eurozone industrial production data down on expectations
Data from the European economic calendar did little to infuse confidence in a week already dominated by the risk-off trade. Eurozone industrial production came in worse than expected at -2.0% YoY (Exp -1.2%, Prev 0.1%) with GDP data showed that the Euro-zone slowed down YoY to 0.7% (Exp 0.7%, Prev 1.3) with the QoQ reading showing a contraction to -0.3% (Exp-0.4%, Prev 0.1%).
Perhaps the most worrying data was from Portugal whose YoY GDP contracted -2.7% (Exp -2.8%, Prev -1.7%) with the QoQ reading also contracting -1.3% (Exp -1.5%, Prev -0.6%).
And finally, the rating agencies were at it again - Moody's downgraded six European nations, the most notable being Spain, Italy and Portugal and put the UK and France on a negative outlook. The downgrades couldn't have come at a worse time, and judging by couple of successful bond auctions in which Greece, Portugal and Italy all met their targets, it seems the markets are starting to place less and less importance on rating agency downgrades as the frequency of this action continue to irresponsibly pick up.
Japanese Yen weakens on stimulus extension
And finally, the Japanese Yen came into a sustained period of weakness this week after the Bank of Japan announced an extension worth ¥10 trillion to its stimulus program, in its first such action since October.
The announcement followed after some rather bearish growth data from Japan - QoQ GDP contracted -0.6% (Exp -0.3%, Prev 1.7%) with the annualized reading coming in at -2.3% (Exp -1.3%, Prev 7.0%). The Yen closed at its highest price in 2012 at 79.55 against the USD while closing at 104.53 against the Euro. |
Monday, 20 February 2012
Ame Info
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