Quotes: US MENA   Enter Symbol: NewsLetter: Search: advanced

Forex Analysis: Euro Will Run a Relief Rally if Officials Finally Approve Greece Aid  Join our daily free Newsletter

MENAFN - DailyFX - 17/11/2012

No. of Ratings : 0
Add to Mixx!


 


Euro_Will_Run_a_Relief_Rally_if_EU_Officials_Finally_Approve_Greece_Aid_body_Picture_1.png, Forex Analysis: Euro Will Run a Relief Rally if Officials Finally Approve Greece Aid

Fundamental Forecast for the Euro: Bullish

Risk trends clearly struggled this past week. Though the underlying fundamental measures of speculative appetite were slow to follow, the benchmark US equity indexes (representing both investor sentiment and a bullish bias padded by Fed stimulus) reflected a dramatic decline in trader confidence. In this ‘risk off’ environment, we would expect one of the world’s most fundamentally-troubled currencies – the Euro – to be under tremendous pressure. In fact, where the S&P 500 has dropped another 1.5 percent this past week; the Euro has actually advanced against all of its counterparts (except for the Swiss franc). The definition of a strong currency is one that leverages its progress on bullish news and curbs the effect of negative developments. Is that what we are seeing here – a currency ready to rally on good news?

The backdrop for market conditions these past few weeks has proven quite unique, and particular circumstances going forward will only add another layer of complexity moving forward. However, before we delve into the outside conditions; we should first discuss the individual bearing and performance of the euro itself.

Through the opening weeks of September, the shared currency leveraged an exceptional rebound - best read in the EURCHF’s long-overdue advance from its artificially-imposed 1.2000 floor. That strength developed out of the backstop bond purchasing program from the ECB (the OMT effort announced the previous month) and belief that crises in Spain and Greece would not worsen materially. However, that optimism has since deflated as the squabble over paying Greece’s €31.5 billion aid tranche has been drawn out and Prime Minister Rajoy still refuses to ask for an official bailout despite the multi-faceted problems his economy and financial system faces.

Yet, recently, we have seen glimmers of hope filter through the euro’s otherwise murky future. This past few weeks, Greece secured a two-year extension to meeting its deficit targets and it was able to raise €5 billion to roll over a short-term bill that came due. The true litmus test for the country and euro’s near-term health comes early this upcoming week. On Tuesday, the Eurozone Finance Ministers are scheduled to meet specifically on Greece. Italy’s Finance Minister (amongst a few others) has voiced his confidence that the region’s most troubled member will finally secure financial aid at this meeting. If officials finally approve a payment to the country, it could immediately deflate the region’s greatest fundamental threat. On the other hand, considering the market is currently leading a favorable outcome, a disappointment could shed all hesitation in unloading the euro and the region’s speculative assets.

The level of concern surrounding Spain’s financial progress / decline will correlate directly with the confidence in Greece. If traders read the events pertaining to the latter’s financial aid poorly, Spain’s refusal to tap support will be judged an explicit risk to the broader region. Spain has two bond auctions, a redemption and the release of the Bank of Spain’s bad loan data on tap. All noteworthy, but the real concern will always be when (not ‘if’ as the market already expects it) the Eurozone’s fourth largest economy will tap the rescue program.

Another critical aspect to the direction and momentum behind the euro is the general state of market conditions over the coming week. This currency has come off as exceptionally strong this past week as it has fended off a dollar climb and equities plunge. This stand out strength has a caveat to it. In fact, risk trends have not fully engaged – best seen in the Risk-Reward Index and lack of progress on the volatility indexes (measures of market fear). If risk trends were to find fully commitment from all asset classes, it would sink the euro.

Given the general trend behind the capital markets these past weeks, a sustained – and potentially escalated – risk aversion move seems a strong probability. However, there is a disruption that we must account for: the US holiday. Thanksgiving may not be recognized in the Euro-area, but the historical drain on speculative activity is. A curb on risk aversion can actually lead to a mild ‘risk on’ correction. – JK


 






  MENA News Headlines


 
Click to Apply






Google

 
 

Middle East North Africa - Financial Network

MENAFN News Market Data Countries Tools Section  
 

Middle East North Africa - Financial Network
Arabic MENAFN

Main News
News By Industry
News By Country
Marketwatch News
UPI News
Comtex News

IPO News
Islamic Finance News
Private Equity News

How-To Guides
Technology Section

Travel Section

Search News

Market Indices
Quotes & Charts

Global Indices
Arab Indices

US Markets Details

Commodoties

Oil & Energy

Currencies Cross Rates
Currencies Updates
Currency Converter

USA Stocks
Arab Stocks
 

Algeria 
Bahrain 
Egypt 
Iraq
Jordan 
Kuwait 
Lebanon
Morocco 
Oman 
Palestine
Qatar 
Saudi Arabia 
Syria
Tunisia 
UAE 
Yemen

Weather
Investment Game
Economic Calendar
Financial Glossary

My MENAFN
Portfolio Tracker

Voting

Financial Calculators

RSS Feeds [XML]

Corporate Monitor

Events

Real Estate
Submit Your Property

Arab Research
Buy a Research

Press Releases
Submit your PR

Join Newsletters


 
© 2000 menafn.com All Rights Reserved.  Terms of Service | Privacy Policy | Contact Us | Advertise | About MENAFN | Career Opportunities | Feedback | Help