FED expectations keep EURO strong



  The Euro/USD has stabilized close to a four –month high on 1.2815 reached last Friday, ahead of key events in Europe and the US. The Euro traded on 1.2775 on expectations that the Federal Reserve after last week’s poor job data, would launch a new program of monetary easing when it meets September 13th. It is also awaited that the German constitutional court will give a green light to the ECB’s bond buying plan.

  Neither of these expectations shall be taken for granted. The Euro also remains vulnerable to developments in Spain and Greece. Spanish Prime Minister Mariano Rajoy said yesterday that he expected the European Union to set reasonable conditions if Spain finally decided to ask for a bailout. This decision shall firstly be taken when EU finance ministers meet 14th  and 15th September.

 A Spanish bail-out package will contain tight fiscal policies and structural reforms which as in Greece would cause social unrest. Greece acknowledged on Monday big problems in persuading foreign lenders and government partners to accept a 12 Billion Euro package to avoid bankruptcy. Investors are pinning hopes for continued market optimism on FEDs willingness to embark on a new series of quantitative easing in the form of buying of government and other debts. A poll among economists shows that 60 % find that likely.

 Such economic stimulus shall strengthen the EURO and weaken the USD. As a result the of these speculations dollar stood on a four-month low against a basket of currencies. USD/JPY is at 78,20. Stock markets both in US and Asia are falling on profit taking and a weak technology sector after steep falls in the shares of chipmaker Intel. Oil is still trading high on expectations on FED action. Brent stands close to 115 and NYMEX at 96.50. Gold has recovered from yesterday’s correction, trading at 1730. Gold has rallied 7 % over the last month with an even stronger increase in silver.

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