Forex News | Currency News by Forexlive

EUR/US found sellers in the 1.3980s and has eased to the 1.3975 area. Sellers are layered up to the from the 1.39803 through 1.4000, above which small stops are eyed above the resistance line, now at 1.4008. From there, there is not much resistance up to the 1.4080 high from last Monday.

In the big picture, we remain in consolidation mode between 1.37 and 1.42…

BERLIN (MNI) – German federal net new borrowing will amount to only
E44-E45 billion next year, down from the E57.5 billion originally
projected in the 2011 federal budget bill, German daily Bild reported
over the weekend, citing government sources.

The downward revision to the borrowing figure is due to rising tax
revenue and lower interest rate payments, the paper said.

For the current year, the government is expecting federal net new
borrowing of around E50 billion, Finance Minister Wolfgang Schaeuble
said recently.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: MT$$$$,M$G$$$,M$X$$$,MGX$$$,MFX$$$,MFGBU$]

FRANKFURT (MNI) – The world is not engaged in a currency war and
any claims to the contrary are irresponsible, Swiss National Bank
President Philipp Hildebrand said in an interview with German daily
Frankfurter Allgemeine Zeitung released Saturday.

Hildebrand argued that while exchange rate adjustments may be
necessary to ensure more balanced global growth ahead, a significant
revaluation of the Chinese yuan cannot happen overnight.

“We are not in a currency war. After all, we are talking to each
other and you don’t do that in a war,” Hildebrand said. While there may
be some conflict of interests, “I think it irresponsible to describe
them as war.”

“We know that adjustments are needed, possibly also as regards
exchange rates,” Hildebrand said.

Asked whether he was referring to an appreciation of the Chinese
currency to boost domestic demand and slow exports, Hildebrand said:
“This cannot happen over night. It is in nobody’s interest to see a
sudden collapse of growth in a large economic region.”

Hildebrand dismissed recent criticism that a potential second round
of quantitative easing by the U.S. Federal Reserve — widely expected to
be announced next week — is aimed at weakening the dollar.

“I am fully convinced that within its mandate, the U.S. central
bank will take the global dimensions of its decisions into account. But
[the Fed] has a different mandate from the European Central Bank or
the Swiss National Bank: It does not only have to ensure price
stability, but also full employment,” Hildebrand said.

Hildebrand also reiterated that the SNB’s own interventions to
prevent a further appreciation of the franc — which stopped in June
– had been solely aimed at avoiding deflationary risks in
Switzerland.

He observed that previous high levels of the Swiss currency are
feeding through and that he no longer sees positive growth impulses from
the export sector. “We expect a significant slowdown in the first half
of next year,” Hildebrand said.

– Frankfurt bureau: +49-69-720 142. Email: jtreeck@marketnews.com –

[TOPICS: M$$EC$,M$X$$$,MT$$$$,MI$$$$,MGX$$$,M$$CR$]

FRANKFURT (MNI) – Banking rules that fit the U.S.-style
market-based system are not appropriate for the European banking system
and might put them at a competitive disadvantage, European Central Bank
Governing Council member Yves Mersch said Sunday.

“Rules appropriate for the marked-based model should not be applied
to the heterogeneity of the European system,” Mersch said in a speech
text prepared for delivery at the International Association of Lawyers
in Istanbul.

“As the economy in the euro area is largely based on the
availability of bank loans, any regulatory change must take account of
that,” Mersch said. If authorities fail to do that, he warned,
“financing conditions for the real economy might deteriorate, dampening
growth and job creation.”

“The current proposals for new capital and liquidity rules ignore
the importance of bank credit as the dominant means of finance in the
Euro area, the basically well functioning system of universal banks on
this side of the Atlantic,” Mersch said.

Mersch’s comments represent unprecedentedly harsh criticism from
ECB quarters on new banking regulations drawn up by the Basel Committee
on Banking Supervision, which is headed by ECB Governing Council member
Nout Wellink.

In its statement following the G20 meeting of Finance Ministers and
Central Bankers in South Korea last weekend, the ministers endorsed the
new framework, saying they “welcome and commit to fully implement within
the agreed timeframe the new bank capital and liquidity framework drawn
up by the Basel Committee.”

But Mersch said that “given the experience of the crisis,” it
appears wrong for new rules to target deposits and loans of banks as
major threats to financial stability.”

“The universal banks in continental Europe, which rely on deposits
as a major source of finance, were more diversified with retail and
corporate lending operations and fund management than their U.S.
counterparts. Their solid deposit base provided stability to the system
as a whole,” he argued.

“By contrast, the ‘originate-to-distribute model’ pushed forward
risky and opaque products, which were at the epicentre of the subprime
crisis. Only those European banks got into trouble that embarked on
investment banking activities or had bought toxic assets on a large
scale,” Mersch said.

Turning to new rules to address moral hazard associated with
systemically important financial institutions (SIFIs), yet to be drawn
up, Mersch said that imposing higher liquidity demands on such banks
would be questionable “as it sanctions the traditionally larger banks of
continental Europe.”

“Such large banks are unpopular in the US — without being
necessarily more risky,” Mersch said.

He listed three key downside risks emanating from Basel III rules,
which treat bank loans as relatively risky and illiquid, imposing higher
capital requirements and haircuts.

Firstly, “the formerly stable universal banks of continental Europe
would be pushed into riskier activities when the margins of lending to
smaller and medium sized firms were diminishing due to regulatory
requirements,” he said.

New rules could also lead to “comparative disadvantages to the
European banking system. The US banks rely more on fees than on
deposits,” tilting the global playing field, he cautioned.

Finally, “as the real economy is mainly financed by the banking
system, financing conditions for companies without access to the capital
markets would tighten and trigger a negative impact on economic growth,”
Mersch said.

– Frankfurt bureau: +49-69-720 142. Email: jtreeck@marketnews.com –

[TOPICS: M$$EC$,M$X$$$,MT$$$$,MI$$$$,MGX$$$,M$$CR$]

FRANKFURT (MNI) – The European Parliament should put more teeth in
EU fiscal and macroeconomic surveillance than what was agreed last week
by the European Council, European Central Bank Governing Council member
Yves Mersch said in the text of a speech delivered in Istanbul.

“Fiscal and macroeconomic surveillance need to be empowered,”
Mersch told an audience at a meeting of the International Association of
Lawyers.

“The recent discussions within the European Council show a lack of
ambition compared to the already timid proposals of the Commission,”
Mersch said. “It is to be hoped that the European Parliament will revert
to an automatic sanction mechanism,” he asserted.

Mersch, who also heads the Bank of Luxembourg, said “it should be
possible to start with some sanctions even before a country breaches the
3%-of-GDP rule, thus strengthening the preemptive side of the
framework.”

Mersch’s comments are in-line with criticism of ECB President
Jean-Claude Trichet who has warned that the reform proposals are not
going far enough.

The ECB has repeatedly urged stiffer penalties for countries
running up large deficits, including stopping access to European funding
and aid.

Under current proposals, rule breakers will only face sanctions
after six months, once they have been warned. Even then, the version
agreed on by leaders at the EU Summit in Brussels last week would give
much of the discretion back to politicians compared with a previous
proposal by the European Commission, thus effectively removing
automaticity.

Mersch also warned that the financial crisis will result in lower
growth potential and real growth rates ahead.

“Given the massive debt burden that has to be eroded, the
industrialized world will experience lower growth potential,” he said.
“On top of that, the necessary reduction of debt will lead to slower
growth rates in the short term as the unavoidable consequence of the
deleveraging process,” he added.

“Sustainable, longer-term growth…can only be reached when
fundamental economic imbalances are tackled and structural reforms are
initiated,” Mersch said. To achieve this “in Europe, more ambitions and
commitment by political leaders are needed.”

– Frankfurt bureau: +49-69-720 142. Email: jtreeck@marketnews.com –

[TOPICS: M$$EC$,M$X$$$,MT$$$$,MI$$$$,MGX$$$,M$$CR$]

AUD/USD is well supported as the week kicks into gear. Wires are reporting a buy recommendation from a French bank, saying that the odds of a hike tomorrow are under-priced. Traders say that there is about a 25% of a hike tomorrow after the soft CPI data last week…

The other event risk of note tonight is Chinese PMI at 1:00 GMT.

A layer of resistance lies just above the market at 0.9870. More sits at 0.9925/30.

Should prices pull back from resistance, support is at 0.9815/25.

Almost no movement to speak of in early Asian trade. The news wires are as slow as the market with the only news of note is Lula’s hand-picked successor in Brazil has won the run-off.

EUR/USD is quiet in the low 1.3960s while US/JPY is holding in the low 80.30s after a record low close in NY on Friday.

EUR/USD is trading around 1.3960 in early interbank trade, USD/JPY is at 80.30, cable at 1.6040 and AUD/USD at .9850 as the USD opens the week on a slightly weaker note.

As Jamie just mentioned, I’m flying out to NY in a few hours so coverage may be a bit scattered from time to time but we will try and ensure that all the important developments are reported in timely fashion.

Good luck this week.

Sean is winging his way to New York, so our Asian session coverage will be a bit lighter than normal this week.

Please feel free to use the comments section to post links to content the community might find useful.

Progress on currencies was slowed at an Asian summit in Hanoi this weekend as tensions between the two preeminent Asian powers remain sky-high.

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