Future of the euro zone remain in Focus
While the US continues to show strong figures and keep rates low aiming for a consumption-based upswing, the euro zone is struggling with keeping up the pace and is lacking a sustainable solution to the economic crisis. The situation in Greece still not solved.
Despite a strong last week for risky assets, the markets have been selling off on Monday as they question the outcome of the EU-summit in Brussels. The politicians are discussing the possibility of a fiscal union with the aim of reducing the national debt levels. The recent proposal for the structure of the fiscal budgets was that the countries are not allowed to have a debt/GDP ratio higher than 60% and a yearly budget deficit of 3%.
In light of the recent initiatives with regards to the EFSF and the ESM, the market will pay great attention to which penalties a country is to face in case of breaking the rules. The proposal is to be approved by a minimum of 12 countries before it can be introduced as scheduled on the 1st of January 2013. The ESM is also interesting as it has to be paid up front instead of only being guaranteed which is the case with the EFSF. After the World Economic Forum in Davos last week, the market is looking for a solution which is sustainable, stable as well as attainable.
However, as no solution has been made with regards to Greece, this is likely to overshadow the EU-summit. The latest talks are for that the euro zone will take over the fiscal measures of Greece and get the country on the right path. Markets are weighing whether or not the €500 bn LTRO in December was enough to trigger enough credit facilitation to make sovereigns solvent. The joker is Germany as they are the only country which financial position is strong enough to support a Greek economy.
On the other side of the Atlantic, last week the Fed kept its dovish tone which triggered a rally in risky assets and a sell-off in the USD, making EUR/USD taking home its second weekly gain in a row. Following the signals from the Fed, we could be closer to QE3 and will look for further signs in this week’s US job report on Friday as well as the ISM figures.
Technically the EUR/USD has been rejected at the 38.2% Fibonacci retracement in the 1.4247-1.2623 wave at 1.3235, which continues to act as resistance. If the pair manages to close above, then the 100-day moving average, currently at 1.3388 will be next point of interest on a daily basis. Short-term support at bull trend support from 2012 lows, currently at 1.3054.
USD/JPY made a daily close above the 4yr trend resistance on Tuesday last week, but did not manage to sustain the rally, seeing a weekly close back below the trend. Near term support at 76.56.
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