The worries about the debt outlook inside the Euro area could keep pressing on the single currency again today breaking below 1.35 psychological level trading currently at 1.338 versus the greenback which has been already supported by selling in the equities markets despite the revising up of US Q3 GDP to 2.5% from just 2% as the risk aversion sentiment is containing the markets supporting of the gold across the broad after triggered fire between the 2 Koreans which killed 2 south Korean soldiers and unknown damage yet on the northern Korean part which underpinned the demand for the US treasuries from another side looking for the USD dominations as a safe haven again while the gold is looking for getting above 1380$ again right now in squaring fear of risk by the thanksgiving holidays which can spark volatility in the markets this year.
After the market concerning have calmed down in the beginning of this week on a reached deal between IMF, EU and Ireland for having a bailing out package to the last to be the second after Greece this year, the Irish government is facing a stronger criticism can threat its existence for having to impose further taxes adopting new austerity measures under this new debt conditions while it is still stick to its 12.5% corporate taxes which is the lowest in Europe currently and this new unclear political position could effect negatively again on the single currency stability across the broad fearing of spreading out of this stance in Europe and in any new countries can take from this IMF and EU 1 trillion Euros prepared package this year even with its lower interest than the normal bond markets for facing its debt stance deterioration especially after the credit crisis 2 years ago which caused strong loses of their banking system and Ireland was one of the first countries to support its ailing banking system carrying of its loses to suffer severely after the credit crisis in the recent years which weighed negatively on its budget which is in need to this new loans to refinance its current exacerbating deficit gap after its Department of Finance was coming out denying the need for it but the current slow rate of growth which can get down further following the US economy slowing growth and weak labor market in the second half of this year after it was running above 10% in the 90s before adopting the Euro forced it at the end to sign for it for getting their deficit to GDP below 3% as Maastricht treaty pact!
The ECB has already warned earlier this year about the long term debt refinancing in Europe which looks in need of 800 billions euros by the end of 2012 suggesting that the European banks are in need to be ready for facing bad loans following the debt crisis which can reach 123 billions euros for 2010 and 2011 to reach 105 for 2011 and for facing the bad loans from 2007 till 2009 they should be ready with 238 billion euros and the financing problems seems to be ahead from showing a serious need for storing stability and injecting funds into the nerves of the European banks too as the European governments which can transfer the problem to the balance sheet of the ECB threating the single currency credibility.
Best wishes
FX Consultant
Walid Salah El Din
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