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Dollar Moves Higher as EU Fails to Impress With IMF Plan

Dollar Moves Higher as EU Fails to Impress With IMF Plan

2011-12-11 06:05:00
David Liu, Technical Strategist
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Weekend Developments

  • EU17 nations agree on Franco-German plan for tighter budget requirements
  • EU and non-EU countries will provide EUR200 billion to the IMF
  • US opts out on contributing to EU rescue fund to the IMF
  • Chinese exports fall for third consecutive month, may open easing scope

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Markets continued to digest the results of Friday’s marathon agreements between the EU nations in early trading, moving decidedly towards risk aversion as traders saw the EU’s new plan may not be enough to fix the current sovereign debt crisis and prevent persistently rising bond yields in its periphery. The most immediate effect of the new plan is a new contribution of EUR 200 billion to the IMF to aid troubled European nations. EUR 150 billion will come from the EU17 states, while EUR 50 billion will come from other non-European union countries.

The Great Britain and Sweden, which walked away from all-EU27 negotiations last week on sovereignty and competitiveness concerns, will be joined by the US as nations that will not be contributing to the funding for the IMF. US President Obama cited that the EU’s previous efforts were still not enough, and that “Europe is wealthy enough that there’s no reason why they can’t solve this problem.” This move highlighting the lack of developments from Europe in solving its debt crisis may also dissuade other nations from providing funding to Europe though the IMF.

Weekend_12112011-Europe_Summit_Fails_IMF_Plan_body_Picture_1.png, Dollar Moves Higher as EU Fails to Impress With IMF Plan

In other news, Chinese trade data reported over the weekend showed a decline in the pace of exports for the third straight month due to weaker foreign demand as the global economy slows down. Markets foresee additional fine tuning of China’s economic policy by Premier Wen Jiabao, including more relaxed reserve requirements and lending rates. Despite these expectations that may warrant additional demand of Australian and New Zealand goods, the two commodity currencies declined in tandem with other risk currencies against the US dollar as the market focus remains on Europe.

Weekend_12112011-Europe_Summit_Fails_IMF_Plan_body_Picture_2.png, Dollar Moves Higher as EU Fails to Impress With IMF Plan

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