EURusd

EurUSd

lost some ground following the release of strong US Retail Sales data yesterday (Aug. 14th). Both Retail Sales and Core Retail Sales were well above the market estimates. Meanwhile, there was good news out of Greece as the government raised over 4 billion euros in a successful bond auction. The markets in Europe are quiet today, with national holidays in France and Italy. There are a host of US releases, however, highlighted by Core CPI


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Greek auction beats expectations: On Tuesday, Greece raised some 4.063 billion euros in a government auction of three-month bonds, with a respectable yield of 4.43%. The sale was much larger than the previous one, and provides crucial funds as the country prepares to make a 3.2 billion euro bond repayment to the ECB later this month as part of the bailout package.

Greek talks continue with troika: The EU / ECB / IMF delegation left Athens and reported progress in their negotiations with the Greek government. Talks are not scheduled to resume until September, after Greece has a scheduled bond repayment to the ECB. Greece reported a year over year contraction of “only” 6.2% in Q2, better than 6.5% in Q1, and beating the estimate of 7.0%. When it comes to Greece, the markets appear to be taking the attitude that “less bad news is good news”. See how to trade the Grexit with EUR/USD.

ECB downgrades EZ growth: In its Monthly Bulletin, the ECB revised its forecast of Euro-zone growth in 2012 from -0.2% to -0.3%. This negative news will increase the pressure on ECB head Mario Draghi to take action, especially regarding Italian and Spanish borrowing costs. Draghi recently declared that bond yields are unacceptable, and that the ECB will explore ways to act in the coming weeks. Italy and Spain want help, but don’t want more conditions and are hesitating before asking for help. In Germany, opposition is growing for ECB intervention from Bundesbank figures. The reminder of bond buying by the Bundesbank in the 70s was seen as “blackmail” by the German orthodox bankers. Draghi is juggling between the Spanish and Italian desire and the German opposition. With the zone hobbled by 11.2% unemployment, contracting growth and a crippling debt crisis, Europe’s leaders need to bicker less and act more, quickly.

To QE3 or not?: Speculation about QE by the Fed refuses to go away, and was revived after Boston Federal Reserve President Eric Rosengren declared that the Fed should implement QE3 in order to help the troubled US economy. In the meantime, encouraging signs were seen in the US: recent NFP and Retail Sales looked sharp, jobless claims remain low and the trade balance deficit fell to lows last seen at the beginning of 2011. Other market players, however, believe that the QE3 camp seems to miss a simple reality.

Markets worried about German economy: Recent German economic data has been weak, with PMIs, industrial production and manufacturing orders all disappointing the markets. The markets finally received some good news, as German GDP (first release) was up 0.3%, better than the estimate which stood at 0.2%. However, German ZEW Economic Sentiment fell sharply to -25.5 points, its worst showing this year. Germany is not immune.

Dark Clouds Over Italy: Borrowing costs rose after Italy auctioned the full targeted amount of EUR8 billion of one-year government bonds at a yield of 1.69%. This was up from the previous auction, which netted a yield of 1.55%. The economic picture in Italy is grim, as the country is carrying a debt-to-GDP ratio of 123%, and with another GDP decline, has officially been in recession for one full year. The Italian PM Mario Monti has been very active of late, but his popularity in Italy is diminishing, and he also managed to anger the Germans by taking a swipe and dismissing the importance of the Bundestag.

written by Written By Kenny Fisher