HOW LONG BEFORE MARKETS REALIZE THERE IS NO SPAIN SOLUTION?
What we don't know: how much Spain will get and under what conditions. Spain says it won't know until next week, and that there is a whole list of customary conditions for loans that it wants waived. That's it. We will discuss and trade to a new trend in the market going to happen this week I believe
No matter, what we already know is bad enough. There is NO funding as yet lined up for any of the maximum 100 bln euros Spain will request.
A Everyone, Spain and Germany's economic ministers, the Eurogroup, etc, agree that the funding for the rescue is to come from the European Stability Mechanism (ESM) and/or the EFSF.
B The treaty creating the ESM specifically says that the fund can only lend to governments (not banks) in exchange for promises of reforms. The German government has stressed on numerous occasions that it insists that this passage of the treaty is respected. Rumors are that the EU will ease up some of these, but we remain skeptical that Germany will really let these go.
C Yet so far Spain is saying it basically wants doesn't want many obligations attached to the loan. It insists on:
- No loss of sovereignty
- No new fiscal conditions
- No new deficit commitment
- No additional structural reforms
- No IMF supervision
E If it did, how would markets react to news that the EU bailout funds are currently empty?
As a result there is a great opportunity to trade eur/jpy this week Tune into our Daily trade room
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