European Cental Bank

[FXexpert]

The international economic crisis has hit Europe especially hard and no one knows that better than officials working at the European Central Bank. However, some good news has been reported. Top officials at the bank said that the economy may be nearing a turnaround point.

Factors such as falling energy prices, interest rates and consumer confidence due to stimulus plans are beginning to have a positive effect on certain aspects of the worldwide economy. If these growth encouraging programs continue, it's possible that we could see the end of this crisis by the middle of 2009.

[Pinalli]

Monday, a European Central Bank member went on the record (don’t they always) as saying that the German economic growth cycle that has been indicative of the global crisis, will not return until the second half of 2010. Alex Weber, noted in recent weeks for talking down the need for an aggressive stimulus and interest rate policy, perplexed the markets and the Euro took a hit for it. And, although the Euro rebounded later in the day based on good housing news and manufacturing data from China (can we really believe any information that comes from China?), the seed was planted for a prolonged recession – an “L” shape as the analysts call it.

Really confused with the news!!! :O

[JEAN]

The ECB monthly meeting will start in about 20 minutes!!!
The Euro is now rebounding from the 1.3330 resistance and trading at 1.3308...

[Pinalli]

Hi Jean,

yea... Even i had an eye on that news on that day. I feel the European Union cannot catch a break. You would think that the week long news of this looming rate cut and speculation on stimulus by the European Central Bank would have been traded out already, and perhaps it has. But with Germany coming in with a 2% constriction in economic activity coupled with a Standard & Poor’s rating cut for five of its banks the Euro just has nothing to look forward to right now.

Add into this mix the speculation that England might need to start printing more money and it does not look good on the European side – no matter what the stock markets or flip-flopping analysts say.

Regards

[JEAN]

- The ECB is ready to act rapidly against the inflation risks.
- The bank sees nos deflation or inflation in the medium-term.
- The ECB should expand its monetary offer and buy bonds.
- There's no deflation risk in the Eurozone.

[Pinalli]

Thanks for the update JEan.

The Euro rose mostly on Tuesday as German data showed investors and analysts grew more optimistic that economic conditions will be better later this year. The monthly ZEW poll on economic sentiment out of Germany reached its highest level since June 2006, as clear sign that confidence was up.

At 11:30PM GMT, the Euro was up .25% to the Yen to 130.91, up.2% to the Canadian Dollar to 1.5769, and up .15% versus the Swiss Franc to 1.5122. The Euro was down .33% to the British Pound to .8805 after a news report revealed that Britain has held talks with investors to gauge interest in buying stakes in partly nationalized lenders, a move that shows signs that Britain might be looking to denationalize some of their corporate holdings.

[JEAN]

According a member of the German IFO institute, the ECB should use all of its tools to strengthen the financial system:

"We'll propose the ECB to cut rates to 0.5%"
"We should do everything in our range to avoid a credit crisis"
"There are no inflationary risks"
"We're moving closer to a period of economic stabilization"

[Pinalli]

So – We saw yesterday that things are not as rosy in Euro land as people thought, I even wrote about it too, but it gets a bit worse. As it happens the German Economy shrank by again the first quarter of 2009 by 3.8% (6.7% for the year) which is the largest decline since the two Germany’s, East and West, were unified in 1990. What this says is that things are still getting worse. To top off that bad news, a German Finance official made a comment about the stability of German banks. He was quoted as saying “the toxic assets will blow up like a grenade” although later he denied saying that --- one listen to the audio that was played on the radio (BBC, of course) confirms that he did not say that. What he did say was “…the bad assets that the banks have on hand are liable to explode like a grenade if it is not addressed in a more aggressive manner.” Sounds the same to me.

[Pinalli]

The Euro bounced on Monday after a data release showed that there was significant easing in the depressed manufacturing sector in the Eurozone. The Markit Eurozone Manufacturing Purchasing Managers Index for May rose to a seven-month high of 40.7, up from 36.8 in April and just above the analyst predictions of 40.5. That was the biggest monthly jump in the survey's 12-year history, but it was still way off the 50.0 level that separates contraction from growth.

At 10:25PM GMT, the Euro was up .6% tot the US Dollar to 1.4165, up 1.5% to the Yen to 136.97 and up .4% to the Swiss Franc to 1.5153. The Euro did post losses to the commodity currencies, falling .4% to the Canadian Dollar to 1.5448, down 1.16% to the Aussie to 1.747 and down 1.5% to the Pound to .8612.

The Commodity currencies fared well on Monday after oil prices, gold and copper had significant rises.

[JEAN]

The European Central Bank kept its interest rates at 1.00%. The first reaction of the euro was to decline against the dollar and yen.
The central bank should give more details about the buying of covered bonds….