5 Reasons Why the EUR Bounced Intraday
It has been another rollercoaster ride in the financial markets this morning with European investors taking currencies and equities sharply lower when London markets opened for trading. However as the European session progressed and European officials provided assurance to the market that they are working hard at preventing a default by any Eurozone nation, currencies and equities started to recover its earlier losses. The focus remains squarely on Europe and there are a few factors behind today’s intraday rebound in the euro. Whether the bounce can be sustained remains to be seen but there is no question that everything hinges upon confidence because every pip move in the EUR/USD has been determined by rumors and news headlines.
Here are the 5 Factors Behind the Intraday Rebound in the EUR
1. EU Leaders Schedule a Special Summit on EZ Debt Crisis
EU leaders are working hard at stabilizing the financial markets, holding meetings after meetings and on Friday they will hold a special summit to discuss the debt crisis. As we have seen in the recent price action of the euro, all talk and no action is not enough to stabilize sentiment but at bare minimum, it proves that European officials are not asleep at the wheel and ignoring the situation.
2. Eurogroup Takes Steps to Provide Funding Relief for Greece
After the 2 day Eurogroup meeting on Greece, we finally have some concrete actions that will provide much needed debt relief for Greece. Eurogroup nations have agreed to enhance the flexibility and the scope of the EFSF, lengthening the maturities of the loans and lowering the interest rates. The group also discussed main parameters of a new multi-annual adjustment programme for Greece that could improve sustainability of Greek debt. Although private sector involvement and rating agency approval remains a challenge, these are all steps in the right direction.
3. Italy Accelerates Fiscal Package Vote
Italy knows that they could be the next domino to fall which is why Italian officials are looking for ways to boost investor confidence. One of those ways is to accelerate a fiscal package vote. Originally the vote was scheduled for the beginning of August, but it could now take place within the next 2 weeks. Unlike Greece, the opposition party does not have significant issues with the fiscal package. Only a few amendments are expected and the package should pass smoothly which would help to bolster confidence.
4. Comments from Luxembourg Finance Minister
The euro also received some help from the Luxembourg Finance Minister who said there will be no country defaulting in the Eurozone. With Greek and Italian credit default swap spreads remaining at very high levels, we question the accuracy but in a market where investors are hanging on every word from European officials, Frieden’s confidence was enough to boost the euro.
5. ECB Buying Italian Bonds?
There was also a rumor that the ECB could be buying Italian bonds – this is completely unsubstantiated but still managed to contribute to the rebound in the currency.
Finally the U.S. dollar came under pressure after the U.S. trade numbers showed the trade deficit expanding from -$43.6B to -$50.2B to its largest level since October 2008. The expansion in the trade gap was caused largely by a surge in oil imports but exports also dropped 0.5 percent. with retail sales weakening in the second quarter, if the trade balance remains at current levels in June, we could be looking at much slower GDP growth in Q2.
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