Risk Quiet, Yen Weakens In Early Trading; G20, ECB LTRO In Focus

By David Liu,

Weekend Developments
  • US Treasury Secretary Geithner asks for more evidence of EU support for peripherals
  • German Finance Minister Schaeuble: “Europe has done its homework,” “Greece is a unique case”
  • Many G20 nations refuse additional IMF support unless Europe shows better developments
  • ECB 3 Year LTRO scheduled for February 29, expected to be around EUR 500 billion

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Markets were relatively quiet in pre-Asian trading following a week which saw the Euro at its highest against the dollar since early December of last year. Markets will be once again looking for fundamental driven direction following last week’s passage of a second round of bailouts totaling EUR 130 billion for Greece. As G20 finance ministers and central bankers meet this weekend, the next major point of discussion is whether or not the IMF should provide additional support for the EU.

Nations including the United States and the United Kingdom are currently withholding additional support for IMF funding, citing there needs to be additional evidence of Europe trying to contain its debt crisis. US Treasury Secretary Timothy Geithner said this weekend that Europe’s efforts need to be “credible” in stopping contagion. While other EU governments are said to have prepared around USD 200 billion of the estimated USD 500 billion for the IMF fund towards strengthening the EFSF and other programs, the pressure remains on Germany to develop a credible plan.

Traders will also be monitoring the second round of ECB low-interest financing for the region’s banks, commonly known as LTRO. The unlimited amount of lending for a three year period at the ECB’s main refinancing rate of 1.00% is designed to support banks’ balance sheets and provide liquidity support. Although the ECB’s first round of LTRO in December, which drew EUR 489 billion in requests, can be said to have greatly helped risk appetite, the level of the second can be interpreted in different ways, as a demand greater than their first may bring into question the asset and balance sheet health of the European financial sector.

At the time of writing, risk correlated currencies are trending slightly higher, led by the New Zealand dollar. January New Zealand trade data will start the week’s economic docket at 2145GMT; exports, imports and trade balance are all expected softer, with exports expected at NZD 3.70 billion versus NZD 4.32 billion last month, and trade balance at NZD 167 million compared to NZD 338 million in January.

-- By David Liu, DailyFX Research
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Original Article: http://www.dailyfx.com/forex/market_alert/2012/02/26/Weekend_02262012-EU_LTRO_G20_Meeting.html