On Tuesday we stated in our report that the meeting of the G7 finance ministers generated great expectations on the markets. Indeed, we believed that the great announcement is really expected taking into account the seriousness of the financial and economic situation in Europe.
But none of these expectations was justified. On the contrary, Europe was in charge of minimizing the meeting suggesting that the crisis is not a surprise, as if there were a mitigating factor. While the U.S. and Japan put pressure on Europe to take any steps, the old continent continued its useless speeches and being full of good intentions for future that actually looks too unfavorable.
German Chancellor Merkel and her allies looked with some skepticism on the situation understanding that the position of the rest of Europe is exaggerated and that a request for help is ready to be delivered. Meanwhile, Spain is torn between the same request for help and pride of those who do not want to accept economic difficulties, perhaps due to the assumption that "Spain is too big to fail". The phrase, though relevant at the time, was forgotten recently.
The Iberian country is slowly closing the windows as the voluntary market credit begins to turn his back to force the soaring interest rates, unbearable in the long run. However, the authorities are reluctant to seek a solution from the rest of Europe.
The concerns of the United States and Japan are understandable: both know that if Europe continues remain quiet holding these endless meetings, committees and commissions that come to nothing, and with speeches with no sense, the states or banks that are on the brink of bankruptcy will be hit by the crisis. In case of the U.S. with its ongoing electoral process the concern is even greater.
Just minutes ago the European Central Bank announced that benchmark interest rate remained unchanged, as it was at 1%. However, the key issue is the press conference of its chairman, Mario Draghi starting at 8:30 Eastern.
Draghi, after an auspicious start management and decision not to cut the interest rate unwisely raised by the president Trichet twice in 2011, began to have bland presentations and online advertisements with political officials: projections without much sense and awe that markets do not forgive him his lack of decisiveness in order to take the necessary measures.
The ECB, whose primary mission is to preserve the value of the euro and tackle the inflation, showed that no greater responsibilities were taken. Inflation is not just a problem on a continent where half the countries are in recession and unemployment rate is 11%. And the exchange rate of the euro depends too much on his orders, given that before a negative figure of U.S. jobs, the single currency was traded from 1.2290 to 1.25 amid the report from the ECB.
The growth of the euro is believed to be totally speculative, if you think Draghi does not have much to offer to the markets in his speech. It is not surprisingly to see the euro below 1.24 in the next few hours, unless some savior appears which cannot be other than to give financial aid to Spain and Italy, whose fates are quite similar in case there is no swift action. Considering the coming in a week and a half elections in Greece, we can forecast almost certainly appear that the Hellenic country will move away from euro.
The rest of the Forex market also presents interesting movements. The Australian dollar, supported by the local GDP of 1.3% in the first quarter (more than double than expected) gained strength, following the strengthening of the ounce of gold. The Aussie is recovered from the interest rate cut by the Reserve Bank of Australia, before the economic slowdown. The same measures were taken a month ago.
The Canadian dollar and Mexican peso are also away from their lows amid the growth of oil, which now exceeds $ 85 per barrel. In Mexico also another storm front is approaching, which is the political process immersed in the nation with uncertain results.
The yen is the other important object of the day. The day before it had shown signs of weakness as Japan's claim to the high cost of its currency which normally prevents from export their industrial giants. If the price of the USD / JPY pair 79.20 breaks the current level, the yen can be traded at 80 against the dollar within few hours.
During the American session will be announced the data on oil inventories, completing the day's news agenda, as well as the Fed's Beige Book, an anticipation of the meeting on the monetary policy.
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