March 17th, 2011 15:29:12 GMT

Intervention rumblings hit the wires


Apparently Dow Jones reports that the MOF is ready to intervene…

The line was something along the lines of MOF being ready for a battle on the JPY…they had better be.

USD/JPY spiked to 79.20 on the headline…

About freakin’ time is all I can say…Chances of sustained success are much worse today than they would have been last week, but what the heck…

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March 17th, 2011 15:05:19 GMT

ECB Text: Opinion Regarding European Council Decision On ESM


FRANKFURT (MNI) – European Central Bank Jean-Claude Trichet
welcomed on Thursday the European Council Decision regarding the
amendment of Article 136 of the Treaty on the Functioning of the
European Union regarding the Eurozone’s stability mechanism.

The following is the verbatim text released by the European Central
Bank, outlining the bank’s opinion, signed by Trichet, on the draft of
the European Council decision:

Introduction and legal basis:

On 10 January 2011 the European Central Bank (ECB) received a
request from the President of the European Council of the European Union
for an opinion on a draft European Council Decision amending Article 136
of Treaty on the Functioning of the European Union (TFEU) with regard to
a stability mechanism for Member States whose currency is the euro1
(hereinafter the ‘draft decision’).

The ECBs competence to deliver an opinion is based on Article
48(6) of the Treaty on European Union. In accordance with the first
sentence of Article 17.5 of the Rules of Procedure of the European
Central Bank, the Governing Council has adopted this opinion.

General observations:

1. In a monetary union, strengthened fiscal and macroeconomic
surveillance is the appropriate instrument to minimise risks of
sovereign debt crises of the magnitude and severity that the European
Union has experienced in the recent past. To this end, the ECB has
called for a ‘quantum leap’ in the economic governance of economic and
monetary union (EMU), which should lead towards a deeper economic union
that is commensurate with the degree of economic integration and
interdependency already achieved by the Member States whose currency is
the euro. The ECB put forward its proposals for such ‘quantum leap’ in
its communication ‘Reinforcing economic governance in the euro area’ of
10 June 2010 and has made concrete legal suggestions to this effect in
ECB Opinion CON/2011/13 of 17 February 2011 on economic governance
reform in the European Union.

2. To the extent that the risk of sovereign debt crises still
remains relevant even under such strengthened fiscal and macroeconomic
surveillance, and with the purpose of safeguarding the stability of the
euro area as a whole, it is desirable to establish a permanent crisis
management framework which can, as ultima ratio, provide temporary
financial support to Member States whose currency is the euro
experiencing impaired access to market financing. Such framework should
be designed in a way that minimises moral hazard and reinforces
incentives for pre-emptive fiscal and macroeconomic adjustment.

3. In the recent past, Member States whose currency is the euro
have underlined their determination to take action to safeguard the
stability of the euro area, and, for that purpose, they put together a
package of bilateral loans to the Hellenic Republic and have established
the European Financial Stability Facility (EFSF) as an intergovernmental
euro area temporary facility to provide assistance to Member States in
difficulty. The EFSF exists alongside the European Financial
Stabilisation Mechanism (EFSM) of the European Union and, also like the
loan package to the Hellenic Republic, its financing is subject to
strict conditions negotiated between the Member State requiring
assistance and the European Commission acting on behalf of the Member
States whose currency is the euro, in liaison with the ECB, and the
International Monetary Fund, and must be approved by the Member States
whose currency is the euro providing assistance.

4. Against this background, and reiterating its call for the
further strengthening of fiscal and macroeconomic surveillance in line
with Opinion CON/2011/13, the ECB welcomes the draft decision. Following
approval by all Member States of the draft decision a new Article 136(3)
will feature in the TFEU. In accordance with it, Member States whose
currency is the euro are expected to establish a permanent mechanism,
known as European Stability Mechanism (ESM)3. The ESM is to be activated
if it is indispensable to safeguard the stability of the euro area as a
whole and temporary financial assistance may be granted under it only
subject to strict conditions. The ESM will replace the current temporary
arrangements of the EFSM and the EFSF, which will remain in force until
June 2013 or until a date by which its activities have ended.

5. In addition, and even before its entry into force, the text of
the new Article 136(3) TFEU helps to explain, and thereby confirms, the
scope of Article 125 TFEU with respect to safeguarding the financial
stability of the euro area as a whole, i.e. the activation of temporary
financial assistance is in principle compatible with Article 125 TFEU
provided that it is indispensable for such safeguarding and subject to
strict conditions. Also, the new Article 136(3) TFEU does not increase
the competences of the Union.

6. With respect to the exact design of the ESM, the necessary
preparations are under way. There are four features that would enhance
the effectiveness and facilitate the functioning of the ESM: (a) it
should be established by means of a Treaty subject to international
public law approved by the Member States whose currency is the euro so
that national laws have to be made compatible with the provisions of the
Treaty; (b) the rules for decision-making in the ESM should favour
efficiency, for instance by providing for the activation of the ESM by
mutual agreement of the Member States whose currency is the euro; (c) in
full compliance with the Treaties, the ESM should be granted the
capacity to employ an appropriate range of instruments in order to be
able to effectively fight against contagion in situations of acute
market instability; and (d) the ESM has to observe the principles of
cautious and sound financial management and be subject to auditing by
external and internal auditors.

7. In addition to these four features, there is a fundamental need
for the ESM to be safeguarded against the moral hazard inherent in any
crisis management mechanism. Safeguards such as IMF involvement in debt
sustainability analysis, programme negotiations and financing,
nonconcessional terms consistent with IMF practice and regular and
strict surveillance on compliance by the assisted Member States with the
programme of fiscal and macroeconomic adjustment on which financial
assistance is conditional, are indispensable for providing strong and
lasting incentives for sound fiscal and economic policies in the Member
States whose currency is the euro. Furthermore, such safeguards support
the effectiveness of the abovementioned strengthened fiscal and
macroeconomic surveillance framework of the Union.

8. A key element of the draft decision is that it provides for an
intergovernmental mechanism instead of a Union mechanism. The ECB
supports recourse to the Union method and would welcome that, with the
benefit of the experience gained, the ESM would become a Union mechanism
at an appropriate point in time. In the meantime, the ECB encourages
that regarding the assessment of circumstances leading to the activation
of the ESM and regarding conditions on financial assistance, Union
institutions are granted a prominent role given their expertise and
their focus on the collective Union interest.

9. With respect to the role of the ECB and the Eurosystem, while
the ECB may act as fiscal agent for the ESM pursuant to Article 21.2 of
the Statute of the European System of Central Banks and of the European
Central Bank (hereinafter the Statute of the ESCB), in the same way as
under the Unions Medium-Term Financial Assistance Facility4, the EFSM
and the EFSF, Article 123 TFEU would not allow the ESM to become a
counterparty of the Eurosystem under Article 18 of the Statute of the
ESCB. On this latter element, the ECB recalls that the monetary
financing prohibition in Article 123 TFEU is one of the basic pillars of
the legal architecture of EMU5 both for reasons of fiscal discipline of
the Member States and in order to preserve the integrity of the single
monetary policy as well as the independence of the ECB and the

10. The ECB encourages Member States to approve the draft decision
promptly in order for it to enter into force at the date provided in it,
which is 1 January 2013.

11. The ECB recommends that the draft decision is amended on a
legal technical point. A specific drafting proposal is set out in the
Annex accompanied by explanatory text to this effect.

Done at Frankfurt am Main, 17 March 2011.
The President of the ECB
Jean-Claude TRICHET

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

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March 17th, 2011 14:56:44 GMT

Part of dollar slide linked to dwindling US influence


It wasn’t so long ago that the US was the world’s lone superpower. You’d never know it, given the submissive stance taken by the White House of late.

Rather than lead on issues in the Middle East, Obama has let events dictate to him. He has been no where to be found on Libya, and now that war has all but been lost. Sure it makes sense to have allies in the area play the dominant role, but it does not mean you lay back and do nothing.

For years, global elites have been praying for the demise of US hegemony. It appears to finally be happening, to the detriment of the dollar and to the western alliance.

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March 17th, 2011 14:33:37 GMT

IMF: No comment on JPY


  • Priority should be on reviving economy, getting growth going
  • Japan has financial capacity to meet rebuilding needs from earthquake

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March 17th, 2011 14:25:14 GMT

Rising US yields, equities helping stabilize USD/JPY


USD/JPY has taken on its former persona as a sluggish mover after its brief cameo appearance as a bungee-jumper late yesterday.  It is getting some help by rebounding US yields. US 10 year notes are 7 bp firmer on the day, helped in part by the firm Philly Fed. US equities have extended their bounce as well, now up 1.5% on the session.

USD/JPY has settled into a 78.60/78.80 range and we are nearing the top of that band.

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