This weekend’s G20 meeting in Mexico saw countries lining up to turn the heat up on Germany to relax its opposition to an increasing of the €500bn limit on the new bailout fund, the ESM, as well as the combining of it and the remaining €250bn in the EFSF.
There does appear to be some signs of that pressure starting to distil into a softening of this stance; after German finance minister Schaeuble said that such a move might be considered when Europe meets later this week in Brussels, after the latest vote on the Greek bailout in the German parliament.
It would appear that any offers of new IMF money appear to hinge on Europe doing more in its own right to deal with the problems on its own doorstep. The IMF has already hinted that its own contribution to the Greek bailout cannot be taken for granted if Germany continues to prevaricate about increasing the size of the firewall.
The US in particular as the IMF’s biggest contributor remains implacably opposed to making further funds available to the IMF until European countries in particular; take further steps to inject more money, to boost the new firewall.
US Treasury Secretary Timothy Geithner in particular urged stronger action from EU policymakers to increase the size of a firewall, completely ignoring the fact that his own central bank’s easy monetary policy is exacerbating problems in Europe as well as elsewhere in the world, keeping the US dollar near historic lows.
Germany’s reluctance to countenance such a move is underscored by today’s vote in the Bundestag which looks set to approve the Greek bailout, though concerns are now being voiced at senior government level about whether Greece should stay in the euro, with the German interior minister questioning whether Greece would be better off leaving the euro.
Greece meanwhile has set an 8th March deadline for its so called voluntary €206bn debt swap which it launched on Friday, giving banks and hedge funds a couple of weeks to mull over, with at least a participation rate of 75% needed. The offer, if accepted will cut the value of the debt by €106bn.
The recent surge in the price of oil is also a concern as it hits record highs against the pound and the euro, on the back of heightened tension in the Middle East, as well as a weak US dollar. This surge in prices has raised concerns that it could choke off the recent improvement in US economic data, as well as make economic conditions in Europe worse than they already are, especially in the periphery, where Greece, Spain and Italy remain particular vulnerable to the Iranian oil embargo.
EURUSD – the single currency continues to outperform moving and closing above 1.3440 which is the 50% retracement of the 1.4245/1.2625 down move, and now opens up the possibility of a deeper move towards the 61.8% level at 1.3630.
Any pullbacks should now find support between 1.3300 and 1.3320 which had until recently been a solid top. Only a move back below here argues for a move back down to 1.3180, and then the 1.3000 level.
GBPUSD – last weeks cable rally once again ran into a wall at the 200 day MA now at 1.5910. A close beyond here has the potential to target a move towards 1.6080. Also the previous reaction high remains a key level at 1.5935.
Pullbacks should fund support around 1.5820 and 1.5720 while the 55 day MA at 1.5620 remains a key support along with the February lows at 1.5645.
EURGBP –the 0.8500 level managed to hold back the current rebound as the single currency starts to lose some momentum. If we get through 0.8500 then a spill over to 0.8550 cannot be ruled out which is 38.2% retracement of the 0.9085/0.8220 down move.
The recent range highs at 0.8420/30 should now act as significant support on the downside Only a move below the 0.8400 level and previous highs opens up a retest of the old pivot at 0.8340, while a move below that retargets the 0.8270/80 range lows.
USDJPY – the US dollar continues its relentless push higher towards the 82.85 area in the near term, which is a 38.2% retracement of the entire down move from the 95.00 highs to the all time lows at 75.30. The lack of any significant pullback augurs well for longer term gains, especially the weekly close above weekly Ichimoku cloud resistance for the first time since 2007. To be more confident about further gains it would be preferable to see a second weekly close above this resistance at the 81.00 level.
In the last 25 years when the yen has closed above its weekly cloud it has gone on to post at least a 1000 point move higher in the ensuing months.
Below 79.20 argues for a deeper move towards the 78.20 level, but the recent resilience in 10 year US bond yields continues to bode well for further gains.