News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Bullish
Wall Street
Mixed
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 93.75%, while traders in France 40 are at opposite extremes with 77.98%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/mXHYu1zN9M
  • Commodities Update: As of 17:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 1.59% Gold: -1.39% Silver: -3.23% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/xchHegk5kh
  • $BTCUSD technical resistance in action. . . #Bitcoin https://t.co/sC21sU5jiX https://t.co/KQdwWtMUNr
  • Forex Update: As of 17:00, these are your best and worst performers based on the London trading schedule: 🇪🇺EUR: 0.34% 🇦🇺AUD: 0.33% 🇳🇿NZD: 0.28% 🇨🇦CAD: 0.21% 🇯🇵JPY: 0.20% 🇬🇧GBP: -0.42% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/6VlOG5bYhZ
  • Sterling has been moving gradually higher against a weak US dollar over the last two months and has now run into topside resistance around the 1.3400 level. Get your $GBPUSD market update from @nickcawley1 here:https://t.co/s7xdXDLzK7 https://t.co/PhpoYK0Cj4
  • Indices Update: As of 17:00, these are your best and worst performers based on the London trading schedule: US 500: 0.42% FTSE 100: 0.42% Wall Street: 0.22% Germany 30: -0.23% France 40: -0.27% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/Zd5U9SNtav
  • Forex liquidity makes it easy for traders to sell and buy currencies without delay, and also creates tight spreads for favorable quotes. Low costs and large scope to various markets make it the most frequently traded market in the world. Learn more here: https://t.co/5uSWKoLkd6 https://t.co/9EBtFSNgZS
  • $EURUSD hitting session highs at 1.1955. Cross-buying in EURGBP also helping the move - Aug high (1.1965) - YTD high 1.2011
  • #Gold Price Forecast: Gold in Free-fall – $XAUUSD Breakdown Levels - https://t.co/2Xc9f8VQyc https://t.co/khZVH4YVRl
  • OPEC+ is leaning towards extending oil production cuts for 2-3 months #oott
Latest European Union Treaty Focuses on Fiscal Compact

Latest European Union Treaty Focuses on Fiscal Compact

2012-01-31 20:48:00
Christopher Vecchio, CFA, Tzu-Wen Chen,
Share:

Will the Euro-zone and the Euro survive the sovereign debt crisis? While the answer is unknown, what is known is that European leaders are exploring every avenue to find a solution that would keep the common market together. After the developments this past week, there is the possibility of another interim solution for those that choose to agree to the new treaty’s standards.

A draft of the European Union’s latest treaty, titled “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union”, was released on January 27, 2012. The proposal focused on the obligations of each of the member nations of the European Union to work towards common objectives for sustainable growth, employment, competitiveness and social solidarity. These goals would be reached by each of the members following a set of rules to ensure budgetary discipline through a fiscal compact and to improve the coordination of economic policies.

The key points discussed in the treaty are highlighted below:

  • Government budget must be balanced or in surplus. The health of the budget is assessed against the medium-term objective for the annual structural, or non-cyclical, balance. This objective is country-specific as set out in the Stability and Growth Pact. What it means: countries can’t run deficits except in economic downturns, specific levels set by the Stability and Growth Pact.
  • If a member nation is not achieving its medium-term objective, corrective measures must be taken in line with the nature, size and time frame proposed by the European Commission. The Commission will evaluate its progress based on an overall assessment of the structural balance. What it means: the European Commission will step in if a country breaks the rules.
  • Deficits and government debts should not exceed 3 percent and 60 percent, respectively, of GDP. If government debt is more than 60 percent of GDP, the nation will need to reduce its debt at an average rate of one twentieth per year as a benchmark. If the deficit is excessive, it must also submit a plan to the Commission and Council with a detailed description of the structural reforms that must be implemented to correct the excessive deficit. The Commission and Council will monitor the implementation and progress of the program and yearly budgetary plans. What it means: the European Commission will step in if a country breaks the rules.
  • If the Commission finds that a nation has failed to comply with its corrective measures obligations, the matter will be brought to the Court of Justice of the European Union. If the Court finds that the nation has not complied with its judgment, it may impose on it a penalty payment. What it means: a country that then violates the Commission’s judgment would be fined.
  • Member nations must inform the Commission and Council of upcoming public debt issuance plans (ex-ante), to enable better coordination between member nations. What it means: Treasuries need to tell the Commission when they’re selling debt.
  • Member nations must discuss all major economic policy reforms that they plan to undertake ex-ante, and coordinate among themselves in an effort to work towards a more closely coordinated economic policy. What it means: countries lose some sovereignty and have to discuss all major economic policy reforms in the planning stages.
  • Euro Summit meetings will be held at least twice a year.

This latest Treaty will be come into effect from the earlier of January 1, 2013 or the first day of the month following ratification by twelve member nations. This, however, isn’t guaranteed. Today, Irish Prime Minister Enda Kelly warned that a referendum on the treaty would be held, if necessary. If this were to occur, an event as cataclysmic as Ireland leaving the Euro-zone could happen, though, this remains purely speculation at this stage of the Euro-debt drama.

Additionally, there are significant obstacles in the form of the Greek, Italian, Portuguese, and Spanish economies. Currently, no agreement has been reached on the Greek debt swap deal. In the bond markets, Italian and Spanish 10-year bonds continue to hover in the 5.500 to 7.000 percent yield range, while Portuguese 10-year bond yields have recently jumped over the 15 percent threshold. Structurally, problems exist too: Euro-zone unemployment is at its highest rate since the inception of the Euro, with Spanish unemployment just a hair below 23 percent.

EUR/USD Daily Chart: September 2011 to January 2012

Latest_European_Union_Treaty_Focuses_on_Fiscal_Compact_body_Picture_2.png, Latest European Union Treaty Focuses on Fiscal Compact

Charts created using Marketscope– Prepared by Christopher Vecchio

In summation, while the treaty provides (another) starting point for reforms to take hold and progress to be made, market participants will need to see results before pressure on the EUR/USD eases. Should these pressures pick back up in the coming days and weeks, we would expect the EUR/USD to head back towards its year low of 1.2626 with relative ease. At the time this report was written, the EUR/USD was already well-off its January high of 1.3236, trading at 1.3088.

--- Written by Christopher Vecchio, Currency Analyst, and Tzu-Wen Chen, DailyFX Research

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com.

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES