Daily Market Review 14 of December

OVERVIEW


Financial repressions occur in situations when countries are taking measures to attract investments, which in conditions of unregulated market would go in some other direction. For instance, in a lot of countries the state introduced the regulation rules in the banking and insurance sectors aimed at increasing the volume of the governmental debt on the balance of banks and insurance companies. Moreover, under conditions of intervention of the ECB, Bank of England and FRS on the capital markets by quantitative easing (QE) in the USA and the UK and OMT programs in Europe, the long term interest rates are negative. Such a tactics of not forcing, but rather pushing banks to investing in the governmental debts might be considered soft financial repression. Though the authorities might go further and demand from those institutions to support or increase their share in the debt. In 2011 Spanish banks also increased the volume of crediting the state by almost 15% even regardless of the reduction of similar figure in the private sector and the downgrade of the credit rating of Spanish government. Besides, in a lot of countries including France, Ireland and Portugal the governments have undertaken raids on pension funds in order to finance at their expense the budget deficits. Britain also intends to do the same, by that letting the governmental pension fund to invest in infrastructure projects. Direct or indirect financing of the budget deficits is the main sin of the central banks. QE and OMT are just a new type of an old vice. Such methods suggest that at least during the next decade the economic landscape will most likely be determined by financial repressions.


CURRENCIES


EUR/USD


The Euro grew against the US Dollar from 1.3040 to 1.3100. As can be seen on the technical picture the boundary above at 1.3140 limits the motion upwards. Analysts assume that it makes sense to trade on growth only in the short run. The support at the moment is in the area of 1.2660 - 1.2710. 



GBP/USD


Yesterday the Pound depreciated against the US Dollar from 1.6153 to 1.6084 with further bounce to 1.6118. The Pound took a pause after the initial failure of trying to break above 1.6180. The sentiment at the market is mainly bullish. Also in the short term there might be a consolitadtion with a probability of opening upwards. The key support is at 1.6170. The signal for correction down might be the breach of the level of 1.6095. Anyway the perspectives of the pair seem positive at least when it is traded above 1.6040.