Following a week dominated by Greece, markets will need to take a slightly wider perspective during the forthcoming week. Although two set-piece events should dominate with the ECB interest rate decision on Thursday and US employment data on Friday, markets will need to be on alert for market-changing developments from unexpected directions.
European and Greek officials have made their moves and will now have to await the market verdict. Greece will not default in the short term as the next loan tranche from the EU has been approved and the IMF is also likely to sanction additional support this week.
Nevertheless, there are still a high number of uncertainties and vulnerabilities which could serve to put the Euro under fresh pressure. Firstly, there is very little chance of the Greek austerity package being implemented as planned, especially given the high degree of popular protest. There is also little chance that privatisation targets will be achieved.
The Greek economy remains trapped in recession with the PMI manufacturing index again in contraction zone for June and there is no possibility of meeting deficit targets if the economy stays in recession. Given these stresses, there is an important risk of political upheaval in Greece and a rejection of the current economic path. EU ministers have also suggested that details of a second bailout package will not be approved until September. It is never a good idea to present markets with a long waiting period.
There will also be potential obstacles to plans for the roll-over of Greece's debt held in private hands. The ratings agencies remain on high alert over the process and have warned that they would declare Greece in default if there was evidence that private creditors had been strong-armed into buying more Greek bonds. Again, the evidence suggests that negotiations could be protracted and the prospect of further notionally-rated CDO-type instruments will send a shudder through credit markets. http://forexcapitalmultiplier.com
The European banking sector will also need to be watched very closely in the short term amid worrying signs that confidence is deteriorating. There are important vulnerabilities in the Danish banking sector and this is just the sort of black swan which can derail markets if contagion spreads. There have also been fresh concerns over the Italian banking sector amid warnings of fresh credit-rating downgrades while credit-default swaps indicate an important lack of confidence in the Italian financial sector.
With further doubts surrounding the Spanish economy and banking sector, there is a high risk that capital will continue to drain away from the Euro-zone economy and financial sector which would leave the Euro extremely exposed. [http://sevensummitstrader.info]
The ECB will hold its monthly council meeting on Thursday and there are very strong indications that the bank will increase interest rates by a further 0.25% to 1.50%. Bank President Trichet has insisted that the bank remains in strong vigilance mode which is a powerful indication that rates will be increased and the ECB appears in no mood to back-track. The ECB press conference will also be watched very closely following the rate decision. Trichet has also been very keen to emphasis the distinction between standard and non-standard measures which suggest that the ECB will continue with its liquidity operations. The hints on future interest-rate trends will be extremely important for Euro trends and the ECB may well look to provide guidance on an extended period of stability.
The latest US employment report will be released on Friday. In general, the latest US data has been weaker than expected, but this pattern was disrupted by a significantly stronger than expected reading for the ISM manufacturing index on Friday. Regardless of the data, the Federal Reserve is likely to maintain an unchanged policy for the next few months at least. In this context, the main impact of the data will tend to be on risk appetite. A stronger than expected release would provide further near-term support for risk conditions and underpin commodity currencies. [http://theportfolioprophet.info]
European and Greek officials have made their moves and will now have to await the market verdict. Greece will not default in the short term as the next loan tranche from the EU has been approved and the IMF is also likely to sanction additional support this week.
Nevertheless, there are still a high number of uncertainties and vulnerabilities which could serve to put the Euro under fresh pressure. Firstly, there is very little chance of the Greek austerity package being implemented as planned, especially given the high degree of popular protest. There is also little chance that privatisation targets will be achieved.
The Greek economy remains trapped in recession with the PMI manufacturing index again in contraction zone for June and there is no possibility of meeting deficit targets if the economy stays in recession. Given these stresses, there is an important risk of political upheaval in Greece and a rejection of the current economic path. EU ministers have also suggested that details of a second bailout package will not be approved until September. It is never a good idea to present markets with a long waiting period.
There will also be potential obstacles to plans for the roll-over of Greece's debt held in private hands. The ratings agencies remain on high alert over the process and have warned that they would declare Greece in default if there was evidence that private creditors had been strong-armed into buying more Greek bonds. Again, the evidence suggests that negotiations could be protracted and the prospect of further notionally-rated CDO-type instruments will send a shudder through credit markets. http://forexcapitalmultiplier.com
The European banking sector will also need to be watched very closely in the short term amid worrying signs that confidence is deteriorating. There are important vulnerabilities in the Danish banking sector and this is just the sort of black swan which can derail markets if contagion spreads. There have also been fresh concerns over the Italian banking sector amid warnings of fresh credit-rating downgrades while credit-default swaps indicate an important lack of confidence in the Italian financial sector.
With further doubts surrounding the Spanish economy and banking sector, there is a high risk that capital will continue to drain away from the Euro-zone economy and financial sector which would leave the Euro extremely exposed. [http://sevensummitstrader.info]
The ECB will hold its monthly council meeting on Thursday and there are very strong indications that the bank will increase interest rates by a further 0.25% to 1.50%. Bank President Trichet has insisted that the bank remains in strong vigilance mode which is a powerful indication that rates will be increased and the ECB appears in no mood to back-track. The ECB press conference will also be watched very closely following the rate decision. Trichet has also been very keen to emphasis the distinction between standard and non-standard measures which suggest that the ECB will continue with its liquidity operations. The hints on future interest-rate trends will be extremely important for Euro trends and the ECB may well look to provide guidance on an extended period of stability.
The latest US employment report will be released on Friday. In general, the latest US data has been weaker than expected, but this pattern was disrupted by a significantly stronger than expected reading for the ISM manufacturing index on Friday. Regardless of the data, the Federal Reserve is likely to maintain an unchanged policy for the next few months at least. In this context, the main impact of the data will tend to be on risk appetite. A stronger than expected release would provide further near-term support for risk conditions and underpin commodity currencies. [http://theportfolioprophet.info]
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