Is the third time the charm? European finance ministers will attempt for a third time to agree on an aid package for Greece as they meet in Brussels today. The main focus today is to come up with an additional EUR 10 billion to fill the finance gap that has come about as the EU gave Greece two extra years to meet deficit reduction targets.
Some thoughts on how to fund this extra amount include reduction of interest rates on rescue loans, arranging a debt buyback with bailout funds, as well as applying profits the central bank has received on Greek bond holdings.
One of the main bones of contention here are disagreement over a plan to reduce interest rates. It is possible that cutting rates wold put these rates below the cost of funding for some of the 17 Euro area countries. Another problem concerns the disagreement between the EU finance ministers and the IMF. The IMF wants Greece to hold their debt target at 120 percent of GDP by 2020, while the EU ministers feel the target main need to rise as high as 124 percent. These continuing tensions as significant as the IMF has provided about 50 billion EUR of the 150 billion EUR of loans delivered to Greece since 2010.
Adding to early morning pressure on the EUR today was a vote in the Spanish province of Catalonia as independence parties won a majority , adding pressure for a referendum on secession. The vote was called to force debate on independence.
In other currency news, the BOJ released minutes from their October 30 meeting showing that two board members were in favor of stronger wording on the bank’s commitment to easing. It was suggested that easing continue “until it judges that 1% inflation has been steadily maintained”. This was rejected by the other members of the BOJ. For the first time in history, the BOJ and and the Japanese government issued a joint statement pledging to work together to get Japan “out of deflation”, as soon as possible.
USD/JPY has trading to the lower end of its overnight range, remaining above the 82.00 level this morning after dipping to 81.92 overnight. The USD/JPY had reached a high of 82.62 during overnight trading. Support remains at 81.85.
The latest trading data from the CFTC, shows that traders are once again expecting the EUR to trade lower as net short positions rose to 83,600 contracts, from 67,100 contracts the previous week. Japanese Yen short contracts fell to 30,400 from 40,100. Once again the divergence between the Australian and Canadian Dollars continues. AUD long contracts rose to 68,100 compared with 38,400 in October, while CAD long contracts declined to 66,110 compared to 111,900 in September. Traders remain concerned that discussions in the US over the fiscal cliff could negatively affect the Canadian Dollar if agreement by US lawmakers does not happen by year end.
Speaking of the fiscal cliff, all the “hugging and smiling” that occurred after the Presidential elections seems to have disappeared as Republicans and Democrats differ on how tax revenue will help solve the problem. Republican lawmakers advocate raising federal tax revenue by limiting deductions, while Democrats feel higher tax rates for higher income earners is the way to go. Unless an agreement is made in the next few weeks ahead of the new year, we will “fall over the cliff”, triggering $607 billion in tax increases and spending cuts beginning in January.
Look for the markets to keep their eyes on Brussels today as traders return en masse for the first time since the Thanksgiving holiday. EUR resistance is at 1.2985, then 1.3010. Support for the single currency appears at 1.2950 and 1.2920.
Further reading: GOLD Elliott Wave Analysis – Bullish on the Long Term
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