Ralph Shell @ 1:50 PM, Monday November 15 2010
Negative news continues to plague the euro, as the weaker economies struggle to reduce their deficits. A 24/7 Wall Street Report by Douglas A McIntyre commented:
"Greece acknowledged Monday it would breach conditions for a new instalment of a 110-billion-euro bailout as the IMF and European Union began an audit of the country's austerity measures.
The Eurostat statistics agency issued its final revision of Greece's accounts for the past four years, triggering a new forecast by Athens that its public deficit in 2010 would reach 9.4 percent of output, well above the 8.1-percent target.
Greek bond yields, a measure of investor confidence in the country's finances, rose on Monday, with the rate on 10-year paper up to 11.280 percent from 11.184 percent on Friday.
The ratios for the region were driven up in part by two countries. “In 2009 the largest government deficits in percentage of GDP were recorded in Greece (-15.4%), Ireland (-14.4%).”
The data shows what has happened in the past and recent information from Portugal, Ireland, and Greece show what is likely to happen now. EU officials are practically begging Ireland to take financial aid before its situation spirals out of control and scares investors away from the region’s sovereign paper again.
The prime minister of Portugal said his country’s problems were dire enough to possibly cause its expulsion from the eurozone, if the country does not decide to quit on its own."
Considering the debt load of the Greek and Irish Governments, and interest rates exceeding 11% in Greece, and 9% in Ireland, how long will it be before there is default and work-out of both countries debt? What follows then? Is Portugal, talking about expulsion from the euro, committing a blasphemous act? And what if there are expulsions from the euro? Would their departure result in a stronger euro, or is the euro without the PIIGS a different currency?
The markets fear of uncertainty is weighing on the value of the euro, but the USD did get a little push from the retail sales number. The core number came in as anticipated, up 0.4%, but total retail sales were up 1.2%, better than the expected increase of 0.7%. A pick up in auto and small truck sales was attributed as reason for the sales increase.
All the US economic news, however, was not positive. The Empire State Manufacturing Index came in sharply lower at -11.1, far less than the positive 13.9 index expected. Shortly thereafter the US Business Inventories came in higher than expected, suggesting slowing conditions.
Tomorrow the important German ZEW Economic Sentiment report, expected to be a -5.9 is released at 6am time. This will be followed by the US PPI index, average guess +0.7%, and then the all important TIC Long Term Purchases report.
Although the Fed has presented a united front on Bernanke's QEII venture, there are rumors of internal dissension among the Fed Governors. We wonder if the planned $600B increase in the Fed's balance sheet is etched in stone, or should US business conditions improve, would the monetary expansion plans be altered? Most criticized is Bernanke's desire to stir up some inflation, so the CPI reports will be of special interest. With the food and fuel costs excluded from the core report, the CPI has remained tame.
The EURUSD has retreated sharply from the 1.42 level to a little under 1.36. The negative euro stories have gotten a lot of play, but to date it appears few of the issues have been resolved. Our preference is the short side of the euro, but we are reluctant to sell around current levels. Perhaps we will get a 'turn around Tuesday' with a rally back up to the1.3750 level where we will try the short side. The following weekly chart provides a longer look at the EURUSD. Where are we going to be on 01 15 2011?
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.