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Merkel & Sarkozy unwilling to sanction eurobond as possible means to salvage the euro project. If this is so, someone will have to be thrown to the market wolves – forget Greece -they don’t count. If they think a Capt Oates type sacrifice (for those of you who don’t know he was with Scott’s ill fated expedition to Antartica). However, France & Germany should remember Scott ultimately failed & was still beaten to the South Pole by Amundsen.

Eurozone politicians just seem to be blundering around as even Chinese tell them to get their act together. However, anything Chinese say will only be from a position of self interest – Europe is their biggest market.

The market has already been forewarned that there will be no political end to the Euro-zone crisis from today’s tete-a-tete between Merkel and Sarkozy. Even with German officials insisting that Eurobonds were not on the agenda, a reluctant Chancellor may have to accept that there is only one way to prevent the Euro collapse and that is with Eurobonds replacing sovereign bonds. This would require members to pool their Eurozone risk to reduce their refinancing costs. This is good for struggling members like Greece and Italy. However, the borrowing costs would also rise for the Germans and the Dutch, maybe costing them their triple-A rating.

Issuing Eurobonds, it is believed would add EUR47b to the Germans bill, a snip if you look at the alternative. Capital markets successfully attacking Italy, then France, the Germans losing their coveted AAA credit rating. This in turn could trigger a global depression and a bill for the Germans three times the cost of issuing Eurobonds. As a politician, Merkel must keep her options open!

This morning, the EUR remains supported by a combination of the short selling ban and growing concerns about outflows from a ‘be-leagued dollar’. The divergence in growth between the core and periphery countries is narrowing as noted from the disappointing German GDP data. Growth in Europe’s largest economy slowed sharply in the second quarter (+0.1%), leaving it below pre-crisis levels and calling into question Trichet’s decision to tighten twice this year. Combined with the French data last week, this is more than just a soft patch for the ‘invincible core’. Perhaps policy makers may have to begin their discussions on reversing this years hikes over the coming months?

The US$ is stronger in the O/N trading session. Currently, it is higher against 12 of the 16 most actively traded currencies in a ‘whippy’ session.

Roundup of the choices facing European politicians. Germany will just have to “suck it up” & go for the eurobond option as there is just too much at stake. No wonder gold just keeps on rising!

The market has already been forewarned that there will be no political end to the Euro-zone crisis from today’s tete-a-tete between Merkel and Sarkozy. Even with German officials insisting that Eurobonds were not on the agenda, a reluctant Chancellor may have to accept that there is only one way to prevent the Euro collapse and that is with Eurobonds replacing sovereign bonds. This would require members to pool their Eurozone risk to reduce their refinancing costs. This is good for struggling members like Greece and Italy. However, the borrowing costs would also rise for the Germans and the Dutch, maybe costing them their triple-A rating.

Issuing Eurobonds, it is believed would add EUR47b to the Germans bill, a snip if you look at the alternative. Capital markets successfully attacking Italy, then France, the Germans losing their coveted AAA credit rating. This in turn could trigger a global depression and a bill for the Germans three times the cost of issuing Eurobonds. As a politician, Merkel must keep her options open!

This morning, the EUR remains supported by a combination of the short selling ban and growing concerns about outflows from a ‘be-leagued dollar’. The divergence in growth between the core and periphery countries is narrowing as noted from the disappointing German GDP data. Growth in Europe’s largest economy slowed sharply in the second quarter (+0.1%), leaving it below pre-crisis levels and calling into question Trichet’s decision to tighten twice this year. Combined with the French data last week, this is more than just a soft patch for the ‘invincible core’. Perhaps policy makers may have to begin their discussions on reversing this years hikes over the coming months?

The US$ is stronger in the O/N trading session. Currently, it is higher against 12 of the 16 most actively traded currencies in a ‘whippy’ session.

Roundup of the choices facing European politicians. Germany will just have to “suck it up” & go for the eurobond option as there is just too much at stake. No wonder gold just keeps on rising!

Europe’s politicians have three options to save the euro project. So far they have tried to muddle through, hoping an economic recovery would save the day. Today’s preliminary German gdp figure puts paid to that notion!

Despite the ECB having made good on its promise to tackle the Euro-zone debt crisis by widening its bond-buying program to include paper from Spain and Italy, the move so far is not enough to allay investors deep concerns, as seen by another night of uncertainty. From a neutral stance, ECB’s actions are seen as a temporary relief measure for banks which are saddled with sovereign debt. Investors seek proactive solutions, and not reactionary measures.

Stateside, investors have so far tried unsuccessfully to deal with last weekend’s hangover. Now its up to the authorities. Today we get the FOMC decision. The market expects Ben to announce creative steps towards further monetary accommodation. Will he? The very least, market anticipates maturity extensions of the Fed’s current treasury holdings, creating no changes to the Fed’s balance sheet, but should translate into increased downward pressure on the long end of the yield curve. Investors expect the Fed to modify its ‘extended period’ language, to signal that monetary conditions will remain accommodative even longer. Last Friday’s NFP release probably reduced the immediate expectations of implementing QE3. However, investors are hesitant to buy the dollar this morning given the risk of more QE.

Markets will be expecting a moderate relief rally if the above predictions come true. Sustained improvement is unlikely without European authorities keeping their foot on the gas. The problem, the ECB, as the last line of defense, cannot ‘walk alone’ while being undermined by internal political strife. Their direct actions are breaching a key treaty in the Euro’s founding treaty and undermines its credibility. Where is this coordinated effort?

The US$ is weaker in the O/N trading session. Currently, it is lower against 13 of the 16 most actively traded currencies in a ‘violent’ session.

Great roundup of what’s happening in the markets – but take care everything is moving so fast.

Interesting pennant pattern forming on daily eurusd chart but euro managing to find a base against Swiss Franc & Japanese Yen. Also finding some traction against the British Pound – so once volatility has subsided we should be able to profit from some great counter trades. However, forex trading at the moment is VERY, VERY tricky.

In the wake of Friday’s move by Standard & Poor’s dropping The U.S. credit rating from the top triple-A level, the U.S. dollar has dropped against most of the major currencies. In early morning trading in New York the buck was down 2.5 percent to the Swiss franc while losing nearly a full percent to the euro. Meanwhile gold broke the $1,700 an ounce mark and by 8:50 am had fallen back to $1,698 an ounce.

“Rising risk aversion has led to more demand for safe- haven currencies, such as the Swiss franc and yen,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “That’s also helping to offset the negative impact of the U.S. downgrade on the dollar.”

Source: Bloomberg

Fast moves in current markets require cool heads & very tight stops!

Forex is all about the dollar & if the playground politics continue in US – bye bye triple AAA. It really is turning out to be a long, hot summer.

Eurusd rising today on better than expected corporate earnings in US – tomorrow’s meeting key but headline says it all.