The Eurozone bailout fund seeks banking licence to monetise the EU Government Debt

The European Central Bank (ECB) has suggested that the ESM (the European Stability Mechanism) could gain a banking license thereby enabling the rescue fund to access ECB funds. With the Euro at technically oversold levels, the discussion of a potential increase in the firepower of the region is not yet active, permanent bailout fund was enough for the Euro to rebound even despite the poor economic data (German IFO figures fell by more than expected in July to multiyear lows).

The Euro is currently fitting the bill of a lower-yielding currency. Irrespective of this, there is little doubt that a weaker Euro will help to support the Eurozone’s trade performance and output. It is increasingly clear that Europe is facing an existentialist decision about how to support the weaker Eurozone member countries. Ultimately, this decision is likely to involve whether the ECB will provide money-based financing for sovereigns in some form – directly or indirectly.

As for the UK, the recession continues to deepen as the construction, manufacturing and retail figures remain unimpressive. This notwithstanding,  growth is expected in the third quarter as the lost production from the Jubilee Bank holiday is made up, the sun shines and the Olympics get underway in London. If we don't see an improvement, it is almost certain that the Bank of England will cut interest rates below 0.5% and/or increase quantitative easing yet further.

Meanwhile, policy makers in the US are said to be looking for ways to address the weakness in the economy, should more action be needed to promote a sustained recovery in the labour market. These predicaments have resulted to a two-day policy meeting starting July 31st. There is also a scheduled speech set to be delivered by the Fed Chairman to central bankers on Aug. 31which many market analysts are seeing as a signal from the Fed for more quantitative easing.

Today’s Fundamentals

06:00 EUR German Gfk Consumer Confidence Survey (Aug) - This measures the level of consumer confidence in economic activity. Consensus predicts that this figure will remain unchanged at 5.8

07:00 EMU EUR EcoFin Meeting - The Economic and Financial Affairs Council (EcoFin) meeting covers areas such as coordinated economic measures, budgetary policies, public finances, capital movements and financial markets.

12:30 United States Durable Goods Orders (Jun) – This measures the cost of orders received by manufacturers for durable goods. Consensus suggests a decrease to 0.4% from a previous figure of 1.3% which should be bearish for the USD.

12:30 United States Durable Goods Orders ex Transportation (Jun) - This measures the cost of orders received by manufacturers for durable goods excluding the transport sector. Consensus forecasts a decrease to 0.1% from a previous figure of 1.7% which should be bearish for the USD.

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