EUR USD (1.3145) The IMF has received an extra $430 billion in resources after a lengthy bout of lobbying. A brief look at the news reports on the issue leaves one with an impression that should the eurozone deteriorate and policymakers actually delve into IMF funds it would not be without hefty discussions about the eurozone’s ability to help itself. After all, the major contributors to the current expansion of the Fund are the nations like the UK, Australia, China and Russia whose growth is critically linked to that in Europe. The US and Canada have conspicuously refrained from contributing. Comments by US Treasury Secretary Geithner urging the ECB to use it tools ‘flexibly and aggressively’ have met stiff resistance from the Bank. Board member Luc Coene has said that yet another phase of easy monetary policy would stretch the credibility of the bank, and Ed Nowotny has stressed the need for evaluating the impact of the two LTROs before embarking upon new measures. The Bundesbank’s Weidmann has not only stuck to his opposition to new liquidity operations, he even went to the extent of claiming that higher interest rates could also spur reforms. We reckon that the European comments are an attempt to counter the view that IMF is being used exclusively to bail out the eurozone. These vocal statements notwithstanding, any increased stress in the eurozone will first have to be met by a proactive ECB, in our view. Meanwhile the euro is hovering near our stabilisation point 1.3235. A break would diminish the risk of a decline to 1.2935 and open the prospect of a modest climb into the 1.3350/90 zone.
Click here to read the full report: Daily forex 04.23.12
Deutsche Bank