Forex Flash: EUR/USD: Greece and Jackson Hole in the menu – banks analysis
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EUR/USD
FXstreet.com (Buenos Aires) - With the day about to end, dollar is edging lower for second week in a row against European majors, although advancing against commodity rivals. "The U.S. dollar is being punished for another round of weaker economic data that reinforced the possibility of more stimulus from the Federal Reserve" says Kathy Lien, Managing Director at BK Asset Management. The EURUSD, boosted by a Spain probable rescue, closes the week above 1.2500 first time in 7 weeks yet as Lien says "volume tends to be low in the last 2 weeks of August, which means the short squeeze could be exaggerated."
But things can turn ugly again in Europe, as "markets do not fully appreciate the challenges that Greece and the Troika are facing in the next few weeks, during the first program review. Even though our baseline scenario is that Greece will be able to conclude this review, we believe that markets could soon get concerned about the risks involved" according to Michaela Moran from the BofAML. The bank, estimates that Greece needs in between ¬5bn to ¬20bn to close a funding gap during the program period (2012-Q12016) and at least ¬40bn to bring debt dynamics back to the program path. And the major risk seems to be Greece failing to implement new austerity measures, or the EU unwilling to continue funding the country.
In the meantime, US Jackson Hole symposium will begin on Thursday, and with FOMC minutes revealing that easing is on Fed's radar, Bernanke's annual speech at the Jackson Hole is expected to offer some clues reveal more details on the near-term path of monetary policy; market players have not wasted time and rushed to price QE3 over the past couple of week.
Positive market sentiment has faded somewhat today, leaving US dollar up across the board, except against Japanese yen. As usual, European governing actions are more about market talks and hopes, than real action. " European headlines are contributing to a more cautious mood, including a report suggesting that the ECB may wait for the German Constitutional Court ruling on the ESM before announcing the details of its bond purchase plans. There is also considerable nervousness surrounding the ongoing talks between Greece and European leaders, with few significant announcements made at this stage" reports the Wells Fargo economics group.
But things can turn ugly again in Europe, as "markets do not fully appreciate the challenges that Greece and the Troika are facing in the next few weeks, during the first program review. Even though our baseline scenario is that Greece will be able to conclude this review, we believe that markets could soon get concerned about the risks involved" according to Michaela Moran from the BofAML. The bank, estimates that Greece needs in between ¬5bn to ¬20bn to close a funding gap during the program period (2012-Q12016) and at least ¬40bn to bring debt dynamics back to the program path. And the major risk seems to be Greece failing to implement new austerity measures, or the EU unwilling to continue funding the country.
In the meantime, US Jackson Hole symposium will begin on Thursday, and with FOMC minutes revealing that easing is on Fed's radar, Bernanke's annual speech at the Jackson Hole is expected to offer some clues reveal more details on the near-term path of monetary policy; market players have not wasted time and rushed to price QE3 over the past couple of week.
Positive market sentiment has faded somewhat today, leaving US dollar up across the board, except against Japanese yen. As usual, European governing actions are more about market talks and hopes, than real action. " European headlines are contributing to a more cautious mood, including a report suggesting that the ECB may wait for the German Constitutional Court ruling on the ESM before announcing the details of its bond purchase plans. There is also considerable nervousness surrounding the ongoing talks between Greece and European leaders, with few significant announcements made at this stage" reports the Wells Fargo economics group.
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