Euro, Aussie Dollar May Rise as Yen Falls on Greece Funding Deal

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Talking Points:

  • Euro to Look Past CPI Data, Focus on Greece Debt Negotiations
  • Greek Deal May Boost Aussie and NZ Dollar, Boost Japanese Yen
  • Access Real-Time FX Markets Analysis with DailyFX on Demand

The preliminary set of March Eurozone CPI figures headlines the economic calendar in European hours. The benchmark year-on-year inflation rate is expected to register at 0.3 percent, rising for a second consecutive month. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook.

Rather, the spotlight is likely to remain on Greece. Athens submitted a list of proposed reforms on Friday. The markets now await the verdict on whether the “institutions” representing Greece’s creditors – the EU, the ECB and the IMF – will approve it and unlock the next round of bailout funding. Investors fear that if external funding is not secured, a cash crunch and subsequent default may lead to the country’s exit from the Eurozone.

On balance, both sides of the negotiation are interested in a deal. Prime Minister Alexis Tsipras and company surely realize that a disorderly redenomination will probably compound the country’s economic woes and cost them their jobs. Meanwhile, EU and IMF officials no doubt prefer to avoid a “Grexit” scenario for fear of the precedent it may set. On balance, this means that some kind of accommodation is more likely than not.

An accord that prevents a default and keeps Greece in the currency bloc is likely to prove supportive for the single currency. Follow-through may be somewhat limited however as on-going ECB QE casts a dark cloud over the near-term outlook. It may likewise boost overall risk appetite, sending the sentiment-geared Australian and New Zealand Dollars upward while punishing the safe-haven Japanese Yen. Needless to say, failing to reach a deal stands to produce the opposite response.

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Asia Session

European Session

Critical Levels

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Euro to Look Past German CPI, Focus on Greece Funding Woes

DailyFX.com –

Talking Points:

  • Euro to Look Beyond German CPI, Focus on Greece Developments
  • Aussie, NZ Dollars Drop Amid Commodities-Driven Risk Aversion
  • Access Real-Time FX Markets Analysis with DailyFX on Demand

The preliminary set of March’s German CPI figures headlines the economic calendar in European hours. The benchmark year-on-year inflation rate is expected to register at 0.3 percent, rising for a second consecutive month. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook.

Rather, the single currency ought to be far more interested in Greece-related news flow. The government of Prime Minister Alexis Tsipras submitted a list of proposed reforms that it hopes will unlock the next round of bailout funding on Friday. The so-called “institutions” representing Greece’s creditors – the EU, the ECB and the IMF – began to evaluate the plan over the weekend, with a decision expected later today. Athens faces €5.8 billion in maturing debt this month in addition to the on-going expense of running the country.

Investors fear that if external funding is not secured, a cash crunch and subsequent default may lead to the country’s exit from the Eurozone. Such an outcome would be unprecedented, carrying with as-yet unknown implications for the financial markets at large. Avoiding that trajectory with an accord that keeps Greece within the currency bloc is likely to prove supportive for risk appetite, boosting high-yielding FX and weighing on the safe-haven Japanese Yen. Needless to say, failing to reach a deal stands to produce the opposite response.

Both sides of the negotiation are ultimately interested in a deal. Greek officials surely realize that sticking to their campaign promise of ending austerity at the cost of disorderly redenomination will probably compound the country’s economic woes and likely cost them their jobs. Meanwhile, EU and IMF officials no doubt prefer to avoid a “Grexit” scenario for fear of the precedent it may establish, particularly in larger countries with strong anti-austerity movements such as Spain. On balance, this means that some kind of accommodation is probably more likely than not.

The Australian and New Zealand Dollars underperformed in otherwise quiet overnight trade, falling as much as 0.4 percent each against their leading counterparts. The decline tracked a move lower on Australia’s benchmark S&P/ASX 200 stock index, pointing to risk aversion as the catalyst driving selling in the sentiment-linked currencies. The dour mood seems to have originated in softer oil and iron ore prices. Indeed, shares in the energy and materials sectors proved weakest on the session.

New to FX? START HERE!

Asia Session

European Session

Critical Levels

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To receive Ilya’s analysis directly via email, please SIGN UP HERE

Contact and follow Ilya on Twitter: @IlyaSpivak

original source

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

The Euro Beyond Greece: Getting Larger, Not Smaller

Everyone is looking at Greece, but that is not the real story for the future of the euro. The more important drama centers on Denmark. In the longer term, the Danes – who currently fight hard to preserve the krone/euro peg — have no alternative but to join the euro.

And this has important implications for two other persistent non-members of the single currency: Switzerland and the UK.

The Greek government may fail to square its heated rhetoric with the circle of cold reality that encompasses it, bring down its banking system and default upon its debts. But even then, the euro would remain the country’s de facto currency.

In such a crisis, the heterodox coalition led by far-left Syriza could not continue, precipitating new elections with new political groupings.

Greece is in the midst of a revolution to transform itself into a serious modern European country for which membership of the euro, and the concomitant exorbitant accumulation of debt, are merely the stage and backdrop, not the play itself.

It’s the exchange rate, stupid!

This would be a short-term disaster for the Greeks. But it would not derail reform efforts in other struggling peripheral euro members.

Indeed, the risks of “contagion,” if such exist, would be greater were Alexis Tsipras, the Greek prime minister, to win concrete rather than cosmetic concessions from his partners.

The control of debt was and is a vital part of the euro’s construction. But its fundamental raison d’ètre was, and is, the simple truth that in today’s world of freely flowing capital, which operates on a scale far exceeding actual commercial transactions, sharp exchange rate fluctuations are a serious disincentive to trade.

A true single market in the European Union must eventually have a single currency. If the exchange rate mechanism had worked generally, it would probably have been impossible to create the euro in 1999. The ERM did work for the Danes, as they had successfully maintained a peg with the D-mark for almost a generation.

Denmark’s fight

Now, the Danish National Bank is fighting to maintain the peg in what is left of the ERM, using euro intervention purchases, negative interest rates and the freezing of bill and bond auctions. But the end of this story is clear. The Danes will eventually have to join the single currency de jure, not just de facto.

The Danish crisis was triggered by last month’s decision by the Swiss National Bank to drop its peg against the euro. This exceptionally disruptive episode shows enormous uncertainty in Switzerland as to how to deal with the EU, and most specifically with the euro area.

It followed the contradictory outcomes of Swiss referendums on European rules on free movement of labor and on the composition of the nation’s foreign exchange reserves.

The Swiss franc has risen sharply against the euro, making a severe and sustained recession in the country unavoidable. This has implications, too, for the UK, with its chronic trade deficit, still inside the EU but contemplating leaving for some kind of Swiss-style detachment.

British monetary independence is increasingly illusory and is a major barrier to the essential export- and productivity-oriented rebalancing of the UK economy.

The Danes are paying a very high price in distorting their monetary policy so they can use a different colored euro banknote.

But further in the future, the Swiss and even the British will face comparable stresses dragging them towards the only sure solution for seeing off speculators and securing the stability they need: abolishing their respective exchange rates and joining the euro.

Euro Area Unemployment Rate at 11.5%: Eurostat

MOSCOW, September 30 (RIA Novosti) – The euro area unemployment rate was at 11.5 percent in August, down half a percent from the same time the previous year, Eurostat, EU’s statistical office, informed on Tuesday.

“The euro area (EA18) seasonally-adjusted unemployment rate was 11.5% in August 2014, stable compared with July 2014, but down from 12.0% in August 2013. The EU28 unemployment rate was 10.1% in August 2014, the lowest value since February 2012,” Eurostat wrote.

Greece had the highest unemployment rate among the EU member states, standing at 27 percent, followed by Spain (24 percent) and Croatia (16.5 percent). The lowest unemployment rates were registered in Austria (4.7 percent) and Germany (4.9 percent).

Youth unemployment in the Euro Area stood at 23.3 in the euro area and at 21.6 percent in the whole of EU. In Spain and Greece, over 50 percent of young persons were unemployed.

EU fines JPMorgan, UBS, Credit Suisse for taking part in cartels

By Foo Yun Chee

BRUSSELS (Reuters) – JPMorgan , UBS and Credit Suisse were fined a total of 94 million euros ($ 120 million) by the European Commission for taking part in cartels in the financial sector.

The Commission handed JPMorgan a 61.7-million-euro fine for rigging the Swiss franc Libor benchmark interest rate between March 2008 and July 2009. It was also fined 10.5 million euros for participating in a cartel on Swiss franc interest rate derivatives.

UBS’ penalty in the derivatives cartel came to 12.7 million euros and that of Credit Suisse was 9.2 million euros. Royal Bank of Scotland alerted the Commission about both cartels and escaped total fines of 115 million euros.

The penalties are the latest by the European Commission, which along with authorities around the world, has handed down billions of euros in fines against top banks for rate-rigging, breaking trade sanctions and other misbehavior.

“Acting against financial cartels is one of our top priorities, given the importance of a healthy, transparent, well-functioning financial sector for the entire economy,” European Competition Commissioner Joaquin Almunia said.

The EU competition watchdog said the banks in the interest rate derivatives cartel agreed to collectively fix a pricing element which should have been determined by the market, between May and September 2007 with the aim of preventing rivals from competing on the same terms.

All the banks admitted wrongdoing in return for a 10 percent reduction in their fines.

The Commission slapped a record 1.7-billion-euro fine on six financial institutions last December for rigging two financial benchmarks.

(Reporting by Foo Yun Chee; editing by Barbara Lewis and Susan Thomas)

Following ECB action, euro's exchange rate is balanced: Moscovici

BRUSSELS (Reuters) – The euro was too high but ECB action has brought the single currency to a balanced level, Pierre Moscovici, the EU economy commissioner-designate, said on Thursday.

“What is true, economically, was that the level of the euro until a few weeks, a few months ago, was without doubt, too high,” Moscovici told EU lawmakers. “Action taken by the European Central Bank have brought it down to a level which to me seems balanced.”

(Reporting by Jan Strupczewski; editing by Robin Emmott, Adrian Croft)

Euro Area Unemployment Rate In January Stable At 12%; Inflation Estimate For February Stable At 0.8%

The euro area’s seasonally-adjusted unemployment rate stood at 12 percent in January, stable since October 2013 while in the 28-nation EU, the unemployment rate was 10.8 percent, also stable since October 2013. In comparison, in January 2013, unemployment rate in the euro area was at 12 percent while it was 11 percent in the EU.

According to data from Eurostat, 26.231 million people in the EU, of whom 19.175 million were in the euro area, were unemployed in January 2014. In December 2013, the number of persons unemployed were fewer by 17,000 in both the EU and the euro area.

And, compared with January 2013, unemployment decreased by 449,000 in the EU28, and by 67,000 in the euro area.

Among member nations, the lowest unemployment rates were recorded in Austria (4.9 percent), Germany (5 percent) and Luxembourg (6.1 percent), and the highest in Greece (28 percent in November 2013) and Spain (25.8 percent).

Meanwhile, an inflation estimate from Eurostat for February in the euro area expects it to remain stable at 0.8 percent — the same level seen in January 2014.

Euro Area Unemployment For December Comes In Lower Than Expected At 12%; Inflation In January Dips

While the latest unemployment number is slightly higher than the 11.9 percent seen in December 2012, the data showed unemployment in the region has stabilized since October 2013. A Bloomberg poll had pegged the December 2013 unemployment rate at 12.1 percent.

In the 28-member European Union, or EU, the unemployment rate was 10.7 percent in December 2013, down from the 10.8 percent rate seen in November, and also in December 2012.

According to Eurostat estimates, 26.2 million people in the EU, of which 19.01 million were in the euro area, were without a job in December. But, the month saw 162,000 fewer people in the EU and 129,000 fewer people in the euro area go without a job, compared to the previous month. Compared with December 2012, unemployment had decreased by 173,000 in the EU, but increased by 130,000 in the euro area, according to Eurostat.

The lowest unemployment rates were recorded in Austria (4.9 percent), Germany (5.1 percent) and Luxembourg (6.2 percent), while the highest rates were seen in Greece (27.8 percent in October 2013) and Spain (25.8 percent).

In comparison, the Eurostat statement noted, the unemployment rate in the U.S. in December 2013 stood at 6.7 percent, down from 7 percent in November 2013 and from 7.9 percent in December 2012.

Meanwhile, annual inflation in the euro area in January fell to 0.7 percent from 0.8 percent in the previous month, a flash estimate from Eurostat showed Friday. It was at 2 percent in January 2013.

Irish house prices rising faster than most in EU

Tuesday 21 January 2014 16.46

House prices in the euro zone were down by 1.3% in the third quarter of 2013, according to new figures from Eurostat, the EU statistics agency.

For the EU as a whole, the rate of price fall was 0.5% for the three-month period compared to the corresponding period in 2012.

When compared with the second quarter of 2013, house prices rose by 0.6% in the euro area and by 0.7% in the EU between July and September 2013.

House prices in Ireland rose at a faster pace than most other European countries by that measure.

Prices were up by 4.1% in the third quarter compared with the previous quarter.

This was the second highest rate of increase in the EU.

Only Estonia recorded a better rate of increase where prices jumped by 5.3%.

However, house prices in both Ireland and Spain remain more than a third below their 2007 peak.

While the data is more evidence of the euro zone’s rebound from recession this year, it also shows the hangover from the property crash that followed the global financial crisis. Ireland’s house prices are still 45% below their peak.

The bursting of property bubbles in Ireland and Spain – and to a lesser extent, the Netherlands and Portugal – erased years of economic growth and left banks with trillions of euros of bad loans. Unemployment also remains at record levels after soaring as the euro zone’s crisis unfolded.

Ireland has now exited its EU/IMF bailout programme, while Spain, which took aid for its banks, has said it will not require more.

Meanwhile, an economic recovery is under way across the single currency bloc that counted 17 members at the end of 2013. Latvia, where property prices rose between July and September, joined in January.

Wide divergences in the pace of recovery remain, however, and house prices fell in the quarter compared with March-June in Italy and Slovenia, two countries struggling with high debts.

Property has generally retained its value in the wealthier, northern economies of Belgium, France and Germany.

Unlike non-euro zone Britain, where house price expectations hit a 14-year high in December, the euro zone’s weak property market will do little for households that are unable to buy when banks remain reluctant to lend.

Despite record low interest rates, many families are struggling to obtain financing to buy properties and banks are lending less to the corporate sector, wary that the economic recovery remains fragile.

Naysayers of euro? Here's why to be careful

Even Greece is making a heroic promise that it will soon begin paying its own way, with some economic growth later this year. Spain’s devastated labor markets are improving, and the country needs no further help with its bank restructurings. Portugal came out of a recession in the third quarter of last year, and it may no longer need conditional lending from the IMF and the EU. The house building in Dublin has picked up in recent months as the clobbered Celtic Tiger exults about making “a clean exit” from the bailout program …

A very modest progress, no doubt, but these were all of the eurozone’s major disaster areas. And they are all beating German Chancellor Merkel’s forecast. Reflecting her deep concern about the euro area, she told the regional meeting of her Christian Democrats (CDU) party on November 3, 2012 that “we need a long breath of five years and more” to get out of the financial crisis.

Still, even if the crisis is over, it is much too early to celebrate because 19.3 million people in the euro area have no jobs and basic welfare services.

(Read more: Euro zone’s 2014 pressure point—politics)

But a silver lining of this crisis – if there are any – is that the increasing labor mobility is helping to alleviate some of these problems.

It is not just that the Portuguese are migrating to Angola and Mozambique, and that the Irish are back on their traditional immigration trails to the U.S. and Canada. They are also finding jobs in Europe. It has almost become fashionable for young French graduates to work in other EU countries. And the number of German workers and students moving to Austria has doubled in the last six years.

These intra-European migration trends are bound to amplify. Despite the Bavarian political football with alleged abuses of “immigration tourists” from Bulgaria and Romania, the German Chamber of Commerce and Industry, and the German government, are welcoming the labor force from their European neighbors. They estimate that Germany will need “at least 1.5 million immigrants” in the coming years to help keep the economy going and to pay for the country’s social welfare system.

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