GBP/USD and EUR/USD

Forces Shaping the Investment Climate

MONDAY, NOVEMBER 19, 2012
Marc Chandler

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The US dollar is beginning the new week under modest pressure after the soft close before the weekend. All the major currencies are gaining against the greenback, as are most of the emerging market currencies, including the Israeli shekel, which had weakening in light of the increased hostilities.

The euro, however, has remained below the $1.2800 level. Stops are thought to be above last week's high seen just above there. Additional resistance is seen near $1.2845. Sterling did move through last week's highs (~$1.5915), but has been unable to make much headway from there after recovering a full cent since last Thursday's lows. The greenback was initially pushed to almost JPY81.60 in early Asian trading, but Japan-based offers pushed back sending the dollar to almost JPY81.10. In effect, the dollar has traded in about a 20-25 tick range on either side of Friday's North American close of about JPY81.35.

The dollar-bloc currencies staged impressive recoveries late Friday and have benefited from follow through buying today. The Australian dollar is challenging the $1.04 level after have traded below $1.03 before the weekend. The US dollar is trading near last week's lows against the Canadian dollar. A break of CAD0.9980 could signal a move in the coming days toward CAD0.9900 and the month's low near CAD0.9875.

Global equities are mostly higher. The MSCI Asia-Pacific Index rose almost 1%, helped by what is potentially an upside reversal after falling to new 3-year lows. European bourses are also higher, with the Dow Jones Stoxx 600 gaining a full percentage point, led by financials and technology. Bond markets are mostly softer.

There are four main forces shaping the investment climate. The newest has been the shift in sentiment towards the yen. LDP-leader and likely the new prime minister of Japan has done with a few aggressive comments what the Noda government and the BOJ have failed with achieve with QE and threat of intervention and that is to break the link between the yen and the more general risk environment. The BOJ's two-day meeting concludes tomorrow and after extending its asset purchases program in both September and October, the BOJ is likely to sit pat.

The anticipated policies of the Abe government and the feud with China are spurring a change in investor behavior. While Chinese officials have been boycotting international meetings that have taken place in Japan (both public and private sector), Japanese investors are striking China. Several funds that were to have been launched that focused on China have been pulled. At the same time, the Financial Times reports today how retail investors in Japan are reducing their foreign currency denominated investments, preferring domestic equities and deposits. In the global space, some new funds are trying to tap into the resource theme, with a focus on Australia, New Zealand, Canada and Norway. The FT notes some funds being launched that focus on the Asian region.

How Abe's declarations get operationalized is a different story, but it will not be clear for a couple of months, at least. The more pressing issue is tomorrow's euro area finance ministers' meeting that must ease the immediate funding pressure on Greece or incur the market's disappointment. The most likely outcome seems to be an agreement to ease the debt servicing costs, without a reduction in the principal (i.e., no official sector haircut) to meet Greece's funding needs for next year and 2014. Reducing interest rates and lengthening the maturities have been used before and are still the easiest way to reach an agreement. Funding for 2015 and 2016 will be deferred until some later date.

The IMF will not be happy about this, but since there are not new funds needed (at this juncture), the IMF's leverage is limited. The IMF wants to see a longer-term solution. It is easy for it to push for a official sector haircut because it has recused itself from participating. It will likely be dismissed by pundits as 'kicking the can down the road'.

It is more than that. By 2015, Greece's negotiating position will be vastly improved if it can have a primary budget surplus. This would allow it to insist on the haircut that even Bundesbank President Weidmann says is necessary. Yet it also seems true, from a tactical point of view, that to concede to an official sector haircut now would ease pressure on Greece to implement and execute structural reforms. The OSI will be a post hoc reward for the reforms.

If shift in sentiment toward the yen is the newest development and the European finance ministers' meeting is the most immediate, the US fiscal cliff is the largest force. At issue is whether the world's largest economy is going to contract next year. If it goes over the cliff, the CBO projects a sharp contraction in H1 that will take more than a couple of quarters to recover the lost output and heal the likely deterioration of the labor market.

A few months ago, going over the cliff was inconceivable. Now it has not only become conceivable, but some, like ourselves, see it as increasingly likely. In any event, the key decisions will not take place this week with the President in Asia. Moreover, given the dynamics, investors should be prepared for a drawn out brinkmanship game.

The Federal Reserve will not have the luxury of waiting out politicians. It will have to make a decision a few weeks. Operation Twist will be completed and there does not seem to be a sufficient amount of short-term securities to seriously extend it. The FOMC minutes reinforce our expectation that long-term Treasury buying under Operation Twist will be rolled into QE3+, essentially doubling the monthly outright purchases.

The fourth development comes from a force outside of the financial crisis but also exerts pressure for adjustment. The most recent string of Chinese economic data suggests the world's second largest economy has stabilized after slowing in recent quarters. Data released over the weekend showed housing prices in more cities rose. The HSBC flash manufacturing PMI for November is reported early Thursday in China. It is expected to confirm a modest improvement.

The transition of power in China has been made, even if it not complete. A fine balance was achieved between the forces of order and the forces of change. Cutting across the "princeling" and Communist Youth factions, the agents of change appear to hold the top leadership position, but are not a majority of now seven (down from nine) key politburo.

In the larger picture, this is likely to prove an interregnum period. The new configuration will last five years. It will likely be consolidative in nature and may not see bold new initiatives. At the end of that term, however, over half of the new politburo will be forced to retire due to age limits. This will give the Chinese Troika (Xi Jinping, President, Li Keqiang, Premier and Wang Qishan, Vice Premier a clearer path in the second five year term.

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Investors Rush to Beat Threat of Higher Taxes

By NATHANIEL POPPER and NELSON D. SCHWARTZ

Published: November 18, 2012



Business owners and investors are rapidly maneuvering to shield themselves from the prospect of higher taxes next year, a strategy that is sending ripples across Wall Street and broad areas of the economy.

Take Steve Wynn, the casino magnate, who has been a vocal critic of higher tax rates. He and his fellow shareholders in Wynn Resorts, the company announced, will collect a special dividend of $750 million on Tuesday, a payout timed to take advantage of current rates. Experts estimated that taking the payout this year instead of next could save Mr. Wynn, who owns a sizable stake in the company, more than $20 million.

For the wealthy like Mr. Wynn, the overriding goal is to record as much of their future income this year as they can. This includes moves as diverse as sales of businesses, one-time dividends and the sale of stocks that have been big winners.
“In my 30 years in practice, I’ve never seen such a flood of desire and action to transfer a business and cash out,” said Kenneth K. Bezozo, a partner in New York with the law firm Haynes and Boone. “We’re seeing a watershed event.”

Whether small business owners or individuals saving for retirement, investors are being urged by their advisers to reconsider their holdings. Along the way, many are shedding the very investments that have been the most popular over the last year, contributing to recent sell-offs in formerly high-flying shares like Apple and Amazon.

Investors typically take profits in their own portfolio at year-end, but the selling appears to be more targeted this year. Stocks with large dividends, for instance, are seen as less attractive because of the perceived likelihood of a sharp increase in the tax rate on dividends.
All this is weighing on the broader financial markets, as worries mount about the economic drag from the combination of higher tax rates and reduced government spending set for January if President Obama and Senate Republicans cannot reach a budget compromise before then.
Fears about the fiscal impasse in Washington, along with anxiety about fading corporate profits and weakening economies abroad, have pushed the benchmark Standard & Poor’s 500-stock index down about 5 percent since the election. On Friday, major stock indexes had their best showing of the week after President Obama and Republican leaders signaled that a compromise was possible.

Even if many of the tax breaks scheduled to expire survive a new budget deal, some business owners and investors are bracing for substantial increases in specific areas of the tax code.
The top rate on dividends, for example, could climb to 39.6 percent from 15 percent if no action is taken. Capital gains taxes, which now top out at 15 percent, could rise above 20 percent, many financial advisers say. Most investment income will also be subject to a 3.8 percent charge to help pay for President Obama’s health care law.

Stocks that pay big dividends have been popular in recent years among investors eager for an alternative to the meager returns on bank savings accounts and Treasury securities. Since October, though, the two sectors that provide the most generous dividend payments — utilities and telecommunication stocks — have been among the worst performers, hurt also in part by the devastation of Hurricane Sandy on the East Coast. Utility companies in the S.& P. 500 have fallen 9.4 percent from their highs in October. Telecommunication stocks in the index have dropped 11.3 percent from theirs, compared with the broader index’s 6.8 percent decline from its recent high.

John Moorin, the founder of a medical equipment company near Indianapolis, said he sold about $650,000 in dividend-paying stocks like McDonald’s and Coca-Cola a few days after the election, worried about the potential increase in taxes.
“I love these companies, but I’m so scared that now all of the sudden I’m going to get taxed at such a rate with them that they won’t be worth anything,” Mr. Moorin said.

Although Mr. Wynn has declared special dividends at the end of the year before — most recently in 2011 — in a call with analysts last month, he hinted that higher taxes would cause him and other chief executives to rethink big payouts in future years.
In the meantime, he added, it was “very difficult to do long-range planning with a government that moves as much as this does on so many issues.”

Leggett & Platt, a diversified manufacturer based in Carthage, Mo., decided to move up payment of its fourth-quarter dividend to December from January so shareholders could take advantage of the lower rate.
“If we can help our shareholders avoid taxes and keep more of their dividends, we’ll do it,” said David M. DeSonier, senior vice president for corporate strategy and investor relations.

While negotiators are trying to find ways to raise more revenue for the long term, some experts expect a substantial bump in tax collections in the short term as investors take a multitude of steps now that they would have taken in future years. After the top tax rate on capital gains rose to 28 percent from 20 percent at the end of 1986, federal receipts from such gains doubled to $52.9 billion in 1987, as sales surged at the end of the previous tax year.

The potential jump in tax rates has been telegraphed for months, but many investors say they did not respond sooner because they were waiting to see if Mitt Romney would defeat the president and move forward with his commitment to keep rates at current levels. President Obama, since defeating Mr. Romney, has continued his call for an increase in marginal tax rates on the wealthy. A growing number of Republican leaders have conceded that some increase is now likely.

Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.

Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.
“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.
Of the potential changes in the tax code set to take place on Jan. 1, the scheduled increase in the tax rate on capital gains would hit a particularly broad range of investments.

Business owners, for instance, can lock in the current top rate of 15 percent on capital gains if they sell their company before the end of the year. The capital gains tax also applies to increases in the value of stocks and other securities, encouraging some investors to sell holdings that have done well. This is one of several factors cited in the recent plunge in the price of Apple shares. They have dropped 26 percent since mid-September after rising 73 percent earlier in the year.

The coming changes have not hurt all assets. Municipal bonds have become more attractive because they are exempt from most federal taxes, including the new surcharge related to President Obama’s health care law. Frank Fantozzi, a financial planner in Cleveland, is recommending that his wealthy clients increase their allocation to municipal bonds from around 30 percent to about 40 percent.
But the potential effect of the scheduled tax increases and government spending cuts has been mostly negative. Many market strategists have suggested trimming overall holdings of risky assets like stocks, and business executives are proceeding very cautiously.

Some business owners say they are holding off on hiring plans because they expect tax rates to rise. Dyke Messinger, chief executive of Power Curbers in Salisbury, N.C., said he would like to fill four slots at his construction equipment company but would only hire three people because he anticipated that his tax bill would rise by $100,000.
“It’s not a huge amount of money,” Mr. Messinger said. “But it’s enough money that you don’t want to make a misstep.”


David Kocieniewski contributed reporting.



Source : The New York Times

Pain in Spain

MONDAY, NOVEMBER 19, 2012
Marc Chandler

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The euro area finance ministers will focus on securing aid for Greece at tomorrow's meeting. The aid that it will receive will enable it to service its debt, of which three quarters is in official hands (ECB, IMF and EU). It will not be used for other government expenditures. In this sense, the aid is not bailing out Greece but keeping its official creditors whole.

The finance ministers meeting keeps Greece front and center, but Spain is on the wings. Earlier today the central bank reported that non-performing loans rose to 10.7% (roughly 182 bln euros) in September from 10.5% in August. It is the fifteenth consecutive monthly increase.

However, Deputy Economic Minister Latorre is quoted saying that Spanish bank capital needs are fallen and less than 40 bln euros of aid is needed. Recall European officials have earmarked 100 bln euros for Spain's bank backstop. Previously private sector estimates were for a little more than 60 bln euros.

Although France, Italy and the IMF are clamoring the loudest for Prime Minister Rajoy to formally request aid, Spain itself is not under much pressure from investors. Spain's 10-year yield is about 100 bp above the average over the past five years and down roughly 200 bp since the last July peak. Rajoy does not know, nor can the ECB know, how much Spanish yields will fall if a formal request for aid is made and OMT and ESM buying is triggered.

Spanish officials claim to have met this year's funding needs, but given the budget overshoot and new needs (e.g. regions), and the draw down on its cash buffer, it is not immediately clear if this is really true. In any event, Spain will be holding a few more auctions this year. It will seek to raise 3.5-4.5 bln euros in bills this week and 2.5-3.5 bln in bonds (Thursday).

Official figures show foreign investors increased their holdings of Spanish debt in September to now hold 35.4%, up from 33.5% in August. However, anecdotal reports suggest that more recently some foreign investors have taken some profits. Indeed since the middle of last month, 2-year Spanish yields have risen 70 bp to 3.35% today, the highest since Oct 11. The 10-year yield has risen a little more to reach last week's high just below 6%, which was the highest since late September.

Pressure on Spain is likely to mount and this, we suspect, will force it to formally request assistance in the new year. The source of the pressure will likely come from Spain's funding needs. The budget calls for the sale of some 207 bln euros, but this could increase due to a deficit overshoot, which the market expects and/or more regional needs, as most regions remain locked out of the capital markets. Spanish banks doubled their holdings of Spanish sovereign bonds this year, apparently helped by the two LTROs. Spanish banks have reportedly nearly exhausted their capacity to buy substantially more government bonds.

A new law went into effect today in Spain that limits most cash transactions to less than 2500 euros in an attempt to curb tax evasion. Spanish tax inspectors estimate that the underground economy (cash economy) is as much as 23% of GDP, well above the euro area average of 13%. Note that Italy cut the maximum cash transaction to 1000 euros last year.

Lastly, Catalonia holds local elections this coming weekend. The latest polls show the nationalists are likely to win, but some reports are suggesting that the secessionists may not secure a majority and this would ease one of the sources of anxiety. Some see the Catalonian election as a necessary but insufficient hurdle that needed to be overcome before formal request for assistance is politically practical.

Great Graphic: Components of the Fiscal Cliff


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Here is a Great Graphic from Also Sprach Analyst blog, who picked it up from Deutsche Bank. It shows the seven main components of the fiscal cliff.

The press is full of stories claiming that the framework of an agreement may be taking shape. The reports suggest a two-prong approach. The first is some agreement to reduce next year's deficit by another $50 bln. The second is an agreement on the framework to cut $4 trillion over the intermediate term.

Another hopeful sign was seen by the Obama Administration indicating that Treasury Secretary Geithner will lead the White House's negotiations and not Jacob Lew, who had been instrumental in last year's talks that failed.

Many observers and reporters are linking the firmer tone of equities and the more general risk-on behavior today, which is weighing on the dollar to optimism that the fiscal cliff can be averted. We are skeptical of this reasoning, which seems to be an exercise in post-hoc narrative building.

The fact of the matter is that there were no significant developments over the weekend. There are still profound disagreements over the so-called Bush tax cuts. Even though Democrat candidates in the House of Representatives won more votes than the Republican candidates, the Republicans hold a majority of seats and it is not yet clear which wing of the party is going to lead it.

In any event, there is no sign that the Republicans are rolling over. Given the cast of characters and the incentive structure, a resolution should not be expected until the last moment, if not early next year.

Moody's Cuts French Rating, Matches S&P

MONDAY, NOVEMBER 19, 2012
Marc Chandler

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In what is really a dog-bites-man story, Moody's cut the French sovereign rating to AA1 from AAA, matching what S&P did at the start of the year. The market reaction--taking the euro down from around $1.2820 to about $1.2765--can be largely explained by the thinness of the markets--after New York closed, but before Asian markets opened and the technical implication of the failure of the euro to hold above the $1.28 level. This area, as we have noted has important technical significance in terms of retracement objectives, moving averages and traditional chart patterns.

Moody's did not say anything we have not already written or that one cannot read about in the current issue of the Economist. Yes, the long-term outlook of France is being clouded by the need for structural challenges. Yes, the fiscal outlook is uncertain. Hardly news.

Rating agencies may have access to private information when they evaluate the credit worthiness of corporations. Sovereign ratings rely exclusively on public information. Maybe there is role in some emerging markets where information may be more difficult to acquire. However, with high income countries, the value added that the sovereign ratings offer is of a dubious nature.

Following the sovereign downgrade, large national corporations and financial institutions are often downgraded, as are state-owned entities. In terms of the euro, support is seen in the $1.2740-50 area. The meeting of euro area finance ministers to provide Greece aid is likely more important. Expectations here have been scaled back to expecting a two-year deal rather than a longer-term one that the IMF is pushing for, but does not appear to have the leverage to demand.

CNBC: High Speed Trading Losing it's Edge

MONDAY, NOVEMBER 19, 2012
Marc Chandler



Here is an interview I did a while back on CNBC. Shame on me for not telling my brilliant webmaster so she could get it up on the web faster!




Source : Marc to Market

The USA is going 2 million dollars a minute further into debt - short the dollar

dude, GU save for uptrend ?

Why It’s Best for the US to Fall Off the 'Fiscal Cliff'

Published: Tuesday, 20 Nov 2012 | 11:16 AM ET
By: Jeff Cox
CNBC.com Senior Writer



The next steps in the Federal Reserve's attempt to guide the economy through recovery could come to light today when Chairman Ben Bernanke delivers a speech likely to garner significant market attention.

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While an address two days before a major holiday otherwise might not get much notice, chatter has increased that Bernanke will indicate additional stimulative measures from the central bank."His normal logic is to indicate things and flag things well in advance so he can push different members of the (Open Market) Committee into the same direction," said Torsten Slok, chief international economist at Deutsche Bank. "There's a good chance that he will come out and say that he continues to be worried about the outlook today."

How that worry manifests itself is likely to come in the form of additional asset purchases aimed at keeping the economy on a path forward, and steering investors towards riskier assets.
Consensus is that ultimately the Fed will continue to buy about $40 billion worth of mortgage-backed securities per month and halt its Operation Twist program at the end of the year.

The Twist program entails selling shorter-dated securities and buying those on the far end of the curve in an effort to drive down long-term interest rates. However, the Fed is running out of short-dated notes and bills to sell.
In its place is likely to come a renewed effort to buy about $45 billion a month in Treasurys and continue to expand the Fed's $2.9 trillion balance sheet.

The combination of MBS and Treasurys purchases then would continue on an open-ended basis until the Fed reaches economic growth that would foster an acceptable level of unemployment, currently at 7.9 percent.

(Read More: Sandy’s Impact on Job Growth Will Be ‘Acute’: LaVorgna)

"Given the headwinds facing the US economy, including problems relating to US fiscal policy, it is hard to imagine a sustained acceleration in growth before the middle of 2013," economists at Nomura Securities said in an analysis. "That means that MBS purchases will likely go on until the third quarter of 2013."
The Fed likely will keep its promise to keep interest rates near zero until 2015.

"If there is any lesson from the financial crisis, it’s that financial stability is paramount in meeting broader policy objectives," said Neal Soss, economist at Credit Suisse. "Raising rates too much or too soon could expose a key vulnerability in the financial system. This is yet another argument for expecting interest rates to remain at very low levels for a very long time".
How that plays in the market is hard to tell; previous stimulative measures, known as quantitative easing, have helped spur asset prices, though the third round announced in September has had little effect.

Fed critics worry that all of the money creation will lead to inflation once the central bank clears the debt it has purchased from its balance sheet.
"Mark my words, the concern from about a year out from here is going to be all about monetary policy and how do we reverse this huge animal we created," said Jim Paulsen, chief market strategist at Wells Capital Management. "It won't just be here, it will be in Europe and China and everywhere. It's a huge problem. I wish they'd start thinking ahead a little bit."

Amid its stimulus efforts the Fed has pleaded with Washington political leaders to contain the burgeoning fiscal debt and deficit problems. A crisis awaits at the end of the year — Bernanke has nicknamed it the "fiscal cliff" — in which a series of tax increases and spending cuts will take place unless deficit-reduction targets are met.

(Read More: Obamacare, Host of Others Need Slashing: Simpson-Bowles)

Deutsche Bank's Slok said indications that Washington is serious about debt and deficit reduction will be key before the Fed reverses its accommodative monetary measures.
"They will be worried about what the fiscal cliff could do to the outlook, and not only the fiscal cliff but the uncertainty that's associated with it," Slok said. "That's why the base case continues to be they will basically stop Operation Twist but continue to buy mortgages and on top of that expand QE3. In some sense, you could view that as the status quo because it's the same support to the economy."


Source : CNBC

EURO in H4 Chart...

EURO in Daily Chart...

Euro zone, IMF fail to strike Greek debt deal

By Jan Strupczewski, Annika Breidhardt and Maria Paravantes
BRUSSELS/ATHENS | Wed Nov 21, 2012 4:48am EST



(Reuters) - Greece's international lenders failed for the second week running to agree how to get the country's debt down to a sustainable level and will have a third go in six days' time.


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After nearly 12 hours of talks through the night during which myriad options were discussed, euro zone finance ministers, the International Monetary Fund and the European Central Bank failed to reach a consensus, without which emergency aid cannot be disbursed to Athens.

The IMF has so far refused to give Athens an extra two years to meet its debt target, while European governments led by Germany refuse to write off loans, two options which might make the targets easier to reach.

"We are close to an agreement but technical verifications have to be undertaken, financial calculations have to be made and it's really for technical reasons that at this hour of the day it was not possible to do it in a proper way and so we are interrupting the meeting and reconvening next Monday," Eurogroup chairman Jean-Claude Juncker told reporters.
"There are no major political disagreements," he said.
Nonetheless, the euro extended its fall against the dollar in response, and German bond futures were higher as investors were expected to rush into the safe haven.

Prime Minister Antonis Samaras said the lack of a debt deal between the country's lenders over technical reasons did not justify holding up aid needed to avert Greek bankruptcy. Greece's next big debt repayment is due in mid-December.
"Greece did what it had committed it would do. Our partners, together with the IMF, also have to do what they have taken on to do," Samaras said in a statement.

"It is not only the future of our country, but also the stability of the entire eurozone that depends on the successful completion of this effort in the following days," he added. "Any technical difficulties in finding a technical solution do not justify any negligence or delays."
Athens says it has enacted tough reforms but needs more time to reach fiscal targets agreed with its lenders because its economy has continued to shrink.

A document prepared for the meeting and seen by Reuters declared that Greece's debt cannot be cut to 120 percent of GDP, the level deemed sustainable by the IMF, unless either euro zone member states write off a portion of their loans to Greece or the IMF agrees to extend its deadline by two years to 2022.
The 15-page document, circulated among ministers, set out in black-and-white how far off track Greece is in reducing its debt to the target from a level of around 170 percent of GDP now.

Germany and other EU states say writing down their loans to Greece would be illegal.
"A debt haircut may be the most comfortable and easy path for the affected country ... but our aim must be to fight the roots of the indebtedness," Norbert Barthle, budget spokesman for German Chancellor Angela Merkel's Christian Democrats said.
"It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures...and it would have consequences under budget law," Barthle said in a radio interview.

The Eurogroup document said Greek debt could fall to 120 percent of GDP two years late - in 2022 - without having to impose any losses on euro zone member states or forcing through a buy-back of Greek debt from private-sector bondholders.
But International Monetary Fund chief Christine Lagarde rejected such an extension at similar talks last week.
Without any corrective measures the document said Greek debt would be 144 percent in 2020 and 133 percent in 2022, figures first reported exclusively by Reuters last week.

"To bring the debt ratio down further, one needs to take recourse to measures that would entail capital losses or budgetary implications for euro area member states," the document said.
"Capital losses do not appear to be politically feasible and would jeopardize, at least in a number of member states, the political and public support for providing financial assistance."
Juncker said at a meeting a week ago that he wanted to extend the target date to reduce Greek debt by two years to 2022, but Lagarde insists the 2020 goal should stand.

The document appeared designed in part to convince the IMF that Greek debt could be made sustainable just two years behind schedule if only Lagarde would soften her stance. She is believed to favor euro zone member states taking a writedown on loans to Greece in order to stick to the 2020 goal.

DEBT BUYBACK

Among the main measures under consideration to bring Greece's debt burden down as rapidly as possible is a debt buy-back under which Greece would offer to purchase bonds from private investors at a discount to their nominal value.
Several options are under consideration, officials have said and the document makes clear, including using about 10 billion euros to buy back bonds at between 30 and 35 cents in the euro.

There are also proposals to reduce the interest rate on loans already extended by euro zone countries to Greece, to impose a moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.
Pressure for the euro zone to come up with a solution is high not just because Greece is running out of money and financial markets want a dependable solution, but because Athens has initiated virtually all the steps demanded of it to cut spending, raise taxes and overhaul its economy.
"Greece has delivered. Now it's up to us to deliver," Juncker said.
Because of the latest delay, the ministers were unable to give a go-ahead for the next tranche of up to 44 billion euros of emergency funds to be paid to Athens.
The payment would provide short-term relief, but it is long-term debt that is the core issue.

The European commissioner for economic affairs, Olli Rehn, said as he arrived for the meeting that the euro zone should be ready to do more for Greece in the coming years, an apparent nod to the idea of government-sector debt writedowns.
"It's essential now that we take a decision on a set of credible measures on debt sustainability and, at the same time, we need to be ready to take further decisions in the light of future developments," Rehn said.

(Additional reporting by Alexandra Hudson, Michelle Martin and Madeline Chambers in Berlin and Deepa Babington in Athens; Writing by Luke Baker, Mike Peacock and Peter Graff)



Source : Reuters

POUNDS in H4 Chart...

POUNDS in Daily Chart...

Europe Disappoints; Euro Resilient, Yen Weak

WEDNESDAY, NOVEMBER 21, 2012
Marc Chandler

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European officials disappointed investors by not reaching an agreement on Greek funding. The euro quickly dropped about three quarters of a cent to just below $1.2740 in the Asia session. Perhaps European dealers, more accustomed to such disappointment, or instead focused on the resumption of the discussion on Monday, helped bid the euro back to $1.28.

There are many moving parts, between a moratorium on interest payments for several years, lower interest rates, bond buy back, but one thing that does not appear to be on the table is an official sector haircut that the IMF has advocated (but refuses to participate in), and that Bundesbank President Weidmann acknowledges is necessary.

The Athens Stock Exchange index is off about 0.5% near in early afternoon turnover, led by a 3.25% drop in financials. However, there is a sense that a deal will be forthcoming and Greek 10-year bond yields are off 35 bp and at 16.59%, the lowest in a month. The issue is how to keep the official creditors whole without removing points of leverage to ensure Greece enacts structural reforms.

Part of the euro's resiliency may have to do with the new weakness of the yen and the cross rate demand. After initially hold below JPY82 initially, but after it broke through in late Asian turnover, it has not looked backed and managed to push to JPY82.30 in the European morning. The euro also went bid against the yen. The euro is trading above JPY105 for the first time since early May.. Recall that last Wednesday, the euro was trading below JPY101.

The main driver of the yen's weakness continues to be expectations that next month's election will see a coalition led by the Liberal Democrats that will be much more aggressive on combating yen strength through open-ending quantitative easing, which may include the purchase of foreign bonds.

Separately, Japan reported a JPY549 bln trade deficit in October, its fourth consecutive monthly shortfall. Exports were off for the fifth consecutive month. Exports to Asia, which accounts for over half of Japan's exports was off almost 5% from a year ago, led by a 11.5% decline in exports to China, its largest trading partner. Exports to Europe are off 20%, while the 3.1% increase in exports to the US--Japan's second largest trading partner--was hardly a sufficient offset.

Lastly, we note local press reports that show large Japanese banks were net sellers of government bonds in October. The JPY2.34 trillion of net sales was the largest in six months. While this raised some eyebrows, note that regional banks and insurance companies stepped up their purchases and combined (~JPY2..47 trillion) more than offset the sales by the largest banks.

The minutes from the BOE's meeting earlier this month showed an 8-1 vote not to extend the gilt purchases. Miles, whose dovish comments earlier this week, hinted that he favored more purchases, failed to convince any one else on the MPC.

A rate cut was discussed, but it was not seen as particularly helpful and some thought it could do harm. Sterling itself remains largely sidelined and has trading within the narrow range set on Monday-Tuesday (~$1.5880-$1.5935), The euro's sell-off saw it approach the GBP0.8000 area, recording a six-day low, but it recovered back to almost GBP0.8050.

With the US on holiday tomorrow and the hourly momentum studies stretched after the foreign currency recovery, follow through gains may be difficult to sustain. There will be some passing interest in the weekly jobless claims figures that are likely to be distorted still by the east coast storm. The Markit PMI reading may attract some interest, but the the times series is too new to have many followers. University of Michigan consumer confidence will also be reported today. Note that while business confidence seems weighed down by the fiscal cliff uncertainty, consumer confidence is at multi-year highs.

Multi Levels for EURO in H1 time frime

Wednesday, November 21, 2012

GREEN Levels Colour (with Prices) is SMALL Levels move.
PURPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

Broken Lines Colour (without Prices) is IMPORTANT Levels.

Multi Levels for POUNDS in H1 time frime

Wednesday, November 21, 2012

GREEN Levels Colour (with Prices) is SMALL Levels move.
PURPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

Broken Lines Colour (without Prices) is IMPORTANT Levels.

• Multi Levels for EURGBP in H1 time frime

Wednesday, November 21, 2012

GREEN Levels Colour (with Prices) is SMALL Levels move.
PURPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

Broken Lines Colour (without Prices) is IMPORTANT Levels

Multi Pairs FX in Bar Trend + Power Graph

Wednesday - November 21, 2012

Dynamic Trend : Looking for Any Pairs Trends, from H4 to M1 time frime
Daily Dynamic : Looking for Any Pairs Trends, from D1 to D4 time frime

No Greek Deal, but did Germany Blink?

WEDNESDAY, NOVEMBER 21, 2012
Marc Chandler

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Every one is talking about European finance ministers failing to reach an agreement on Greek funding. There is another meeting scheduled for Monday. It is clear that a Greek exit, which many observers had thought was inevitable in six months ago, is not in the cards.

Instead, what is being debated is how to fund Greece, which we continue to note is not really about aiding Greece as much as ensuring the country's ability to service its debt, which is primarily in official hands. Still that does not stop some officials from proposing to give the private sector another haircut though the buy back of government bonds at a 50 cents of so on the euro. Anticipation of some buy back may be helping to drive Greek bonds higher today.

However, perhaps the most important take away from the failed talks was that it appears to have spurred a tactical shift by Germany. Shortly after talks ended, Germany indicated that it is open to providing new financing for the euro zone's EFSF lending capacity and accept lower interest rates on existing loans. It seems more determined than it has been in making sure that the Athens' program remains intact. The new funds would ostensibly be used by buy back Greek bonds.

To be sure though, increasing the EFSF lending capacity does not necessarily cost German a single cent. Despite cries form some quarters about German reluctance to give more funds to Greece, the fact of the matter is that the EFSF works on the basis of guarantees not money from the creditor nations. The EFSF funds are raised by the sale of bonds to investors, not by transfers from German tax payers.

While there may be opposition to new guarantees, most recognize it is preferable to the alternative that the IMF is pushing for which is an official sector haircut.

The media continues to report that a key remaining hurdle is debt sustainability. The issue is whether Greece should have another two years, to 2022 to bring its debt/GDP ratio down to 120%. That is what the European finance minister seem to favor. The IMF insists on 2020.

These numbers are arbitrary. Why is 120% debt to GDP sustainable, but not 125%? Moreover, the debt/GDP ratio is just as much about the denominator as the numerator. The IMF has done a spectacularly poor job in forecasting Greek GDP. Given the margin of error, there is, statistically speaking, no real difference between the IMF and European finance ministers positions. To be filed under "the hubris of small differences".

Germany's tactical shift underscores another point we have made. Some observers have argued that Germany should consider leaving the monetary union. There is no sign that this is being considered and quite to the contrary, Germany is willing to make some concessions to ensure that monetary union is sustained. Simply put, EMU is in Germany's interest. Leaving EMU would cost Germany. The hard won competitive gains of German producers would be quickly eroded by competitive devaluations. It would leave Germany isolated, which is abhors and it would be blamed for wrecking Europe...again.