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Euro Spikes Higher on Hope of IMF Rescue Plan

Last updated 11/27/2011 7:24 PM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

@import url(/css/cuteeditor.css); Risk currencies exploded higher at the start of early Asian trade as talk of EU stability pact and possible 600 Billion euro IMF infusion into Italy along with strong Black Friday sales in US revived investor sentiment after last week’s massive market selloff. The EUR/USD gaped  higher  rising to 1.3340 at the start of the Asian session while AUD/USD rose to .9850 before taking a small profit taking pause.

Over the weekend a report in the Italian paper La Stampa suggested that the IMF was ready to advance a 600 Billion euro loan to Italy at rate between 4% to 5%  which will provide the country more than 18 months worth of financing away from the capital markets. Italy will need to rollover 300 Billion euro of sovereign debt in 2012 which at current market rates of 7% will likely prove unmanageable for it to service.

Although the IMF loan idea if it can implemented would provide temporary relief to the beleaguered EZ credit markets, it will not solve the long term financing  problems facing the region. Ultimately the EZ will require much greater integration of its fiscal policies and an issuance of Eurobonds it is to stop the short running attacks against the weaker credits in the region. To that end, today’s report in German newspaper Die Welt that Germany is mulling over the idea of joint bond issuance with the five other AAA credits in the monetary union is the first promising step in that direction.

Whether the early investor enthusiasm to week-end news will sustain itself through the European open remains to be seen. European session are notorious for filling the gaps left in the wake of the week-end announcements and a true measure of investor sentiment   will come from the EZ credit  markets especially those of Italy and Spain. If fixed income investors dismiss the latest policy proposals and continue to sell Italian bonds, the rally in risk FX will be very short lived.     

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Comments (1)

G

November 28, 2011 at 12:04 AM ET

Turns out this IMF loan story has to be crap.
Brown Bros Harriman say the IMF has $384bn resources in the form of subscriptions (or whatever they call them) & loans of $284bn. Teh Ital newspaper also did not publish it's sources.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.