European Council President Herman Van Rompuy: “We can’t make…the same mistake that some have made with the launching of the single currency. We launched a common currency but we forgot about having a common economic policy. Now we will launch euro bonds without having a much stricter and much more unified fiscal policy. We can’t make the same mistake.”
But officials are clear that EU Economics Commissioner Olli Rehn won’t be dropping the idea. Mr. Rehn’s view is the exact opposite of Mr. Van Rompuy’s. Rather like the supporters of the euro in the 1990s, he believes that by launching the euro-bond project first, politicians will then ensure that fiscal convergence eventually follows.
No European trend
The Euro is testing resistance at $1.455 after consolidating between $1.40 and that level for the last two months. Twiggs Momentum oscillating in a tight band around zero reflects no real trend and this is likely to continue unless the Fed introduces a new round of quantitative easing.
* Target calculation: 1.45 + ( 1.45 – 1.40 ) = 1.50
The Pound is testing resistance at $1.66 against the greenback. Breakout above the 2011 high of $1.67 would signal another primary advance, but Momentum is falling and we can expect strong resistance between $1.66 and $1.70.
* Target calculation: 1.65 + ( 1.65 – 1.60 ) = 1.70
The Swiss Franc is testing support at $1.25 against the greenback. Respect of support is likely, but breakout above $1.30 is also unlikely in the short-term unless Ben Bernanke announces further quantitative easing.
Portugal Braces for Austerity Battle – WSJ.com
Portugal has little choice but to take tough steps. The country sought international help in April after failing to convince investors it was doing enough to shore up its shaky finances. In exchange for a €78 billion, three-year loan, Lisbon promised the European Union and the International Monetary Fund that it would slash its deficit and make structural changes to spur growth in key sectors.
The problem is these efforts are expected to prolong the economic slump at least two years and drive up unemployment, already at 12%.
FTSE 100 tests support
The FTSE 100 Index is testing support at 5000. Breakout is likely and would offer a target of 4400*.
* Target calculation: 5000 – ( 5600 – 5000 ) = 4400
Europe crashes
Germany’s DAX Index is testing support at its 2010 low of 5400. 13-Week Twiggs Money Flow below zero warns of further selling pressure. Failure of support would offer a target of 4500*.
* Target calculation: 5500 – ( 6500 – 5500 ) = 4500
France has fallen well past its 2010 low, testing support at 3000. 13-Week Twiggs Money Flow again warns of further selling pressure. Breach of 3000 would test the 2009 low of 2500.
* Target calculation: 3000 – ( 3700 – 3000 ) = 2300
Secondary markets are as badly affected. The Amsterdam AEX Index fell below its 2010 low, while 13-week Twiggs Money Flow below zero warns of selling pressure.
* Target calculation: 300 – ( 340 – 300 ) = 260
New Economic Perspectives: ARE WE APPROACHING THE ENDGAME FOR THE EURO?
[The] core problem at the heart of the euro zone is NOT a problem of “Mediterranean profligacy”. Many people, particularly in Germany, express the view that the Italian, Greek or Portuguese governments (and by association their people) are to blame for this crisis – accessing cheap loans from Northern European banks, not paying enough taxes, not working hard enough, etc…..
One thing is clear from the remarks that continue to emanate from Europe’s main policy makers. They do not understand basic accounting identities.
…….The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbor. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”.
via New Economic Perspectives: ARE WE APPROACHING THE ENDGAME FOR THE EURO?.
Europe’s Fiscal Overkill – Telegraph Blogs
For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans.
At the same time we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow.
via Europe’s Fiscal Overkill – Ambrose Evans-Pritchard Telegraph Blogs.
In Defence of PIGS – Telegraph Blogs
The ECB can hold the line for now by purchasing €20bn of Spanish and Italian bonds each week. But once the ECB nears €150bn or so, the markets will brace for the next crisis.
via In Defence of PIGS – Ambrose Evans-Pritchard Telegraph Blogs.
Euro Sterling strengthen
The euro is testing the upper border of a large descending triangle against the greenback. Breakout is not expected as this is a bearish pattern, but would test resistance at its 2009 high of $1.50/1.51.
* Target calculation: 1.44 + ( 1.48 – 1.40 ) = 1.52
The pound broke resistance at $1.65 against the US dollar, immediately retracing to test the new support level. Respect would confirm an advance to $1.67. Penetration of the rising trendline warns of reversal to a down-trend, but 63-day Momentum is rising — continued respect of the zero line would be a bullish sign.
* Target calculation: 1.67 + ( 1.67 – 1.60 ) = 1.74
Swiss Franc finds support
The Swiss Franc fell sharply before finding support at $1.25 as fears of SNB intervention subsided. Expect some consolidation, but recovery above $1.30 would indicate another test of $1.40. Failure of support is unlikely, and would offer a target of $1.10*.
* Target calculation: 1.25 – ( 1.40 – 1.25 ) = 1.10