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FX Day Trading - 26 September 2011
Pressure mounts on Europe
A savvy beggar from Serbia has been raking in the cash ever since he discovered he could make more by pretending to be invisible.
The street beggar from Subotica got so fed up with being ignored by passers-by and hurried commuters he was tempted to throw the hat in. As an act of protest he tossed his cap and shoes down on the street with a hand-written sign saying 'Invisible Beggar' while he busied himself elsewhere and let off some steam.
Once he had calmed down the cheeky beggar went back to his gear and discovered he had got far more than he had bargained for: "When I returned I was astonished to find a crowd and my cap was full of money," he explained. "Now I just put down the sign, a pair of shoes as a prop and wait for the donations to roll in while I have a coffee over the road”.
Greece must be wishing it could pull off the same trick after the world’s financial leaders convened at the weekend to discuss how to go about solving Europe’s debt crisis.
The International Monetary Fund (IMF), World Bank and G20 discussed Europe and Greece in particular, with pressure mounting on EU leaders to find a permanent solution. They may be working against the clock as Greece has yet to secure its second bailout amid questions about whether it can satisfy the aid terms, and it is expected to run out of money next month.
Economists at Citigroup say they expect the country to begin restructuring its debt (ie, defaulting) as soon as December, while analysts at JPMorgan Chase predict the euro area will start contracting in the fourth quarter.
Highlighting the seriousness of the situation, US Treasury Secretary Timothy Geithner set the tone for the annual IMF meeting by warning that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk”.
Finance chiefs from around the world then also chipped in with their own views on the matter, although the fund said it is ready to “strongly support” European nations in their efforts to resolve the region’s sovereign debt crisis.
There are indications European governments are heeding the advice, although they signalled a preference to first pass into law a revamp of the bailout fund (EFSF) that will allow it to buy bonds and directly aid banks.
Leaders are also assessing whether to bring forward the start of the permanent rescue fund, known as the European Stability Mechanism (ESM), a year earlier than its planned July 2013 start.
Ratification discussions have barely gotten under way however, and Germany won’t consider a timetable for approving the ESM until the reinforced EFSF is in place. German lawmakers vote to ratify the EFSF package this week.
The ECB may also step up its own crisis-fighting as soon as next month according to several members of the Governing Council at this weekend’s meetings. Potential measures include the revival of 12-month loans to banks and cutting the benchmark interest rate.
JPMorgan Chase and RBS are both predicting a 50-basis point reduction when policy makers next gather on 6 October.
Until a solid plan of action is formulated, in FX spread betting, we are likely to continue to see US dollar strength and euro and commodity dollar weakness, with the pound caught somewhere in the middle, although volatility will probably be the only real constant.
It’s a quiet week for economic data, with the markets far more interested in the trajectory of share prices and what, if anything, the world’s governments are going to do about it. Those with currency exposure should be considering hedging their risk in these turbulent times.
Currency Trading and Spread Betting carry a high level of risk to your capital and you can lose more than your initial investment, they may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'FX Spread Betting Investors Turn to Dollar Amid Eurozone Crisis', Article by Moneycorp, last update: 26-Sep-11
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