BOE announces LTRO and EUR/USD

hello,

Today, financial markets went through the some interesting information. I'll try to specify the ones in my opinion are the most important, and may have continued in the following days.

1. BOE announces LTRO:

- Long term variable rate repo operation will be held tomorrow;

- Repo op will have maturity date of 09/01/2014.

2. Germany - industrial orders -0.3% m/m:

expected to increase by 1.1%

3. Fed’s Pianalto wanted to taper in September:

- Very supportive monetary policy is still essential to support economy;

- It pays to be cautious with expanding QE3 given limited experience;

- Monetary policy can be powerful but has limits;

- Economy still has some way to go to retain full health.

4. Bank of Italy: bad loans are growing by 22.3% y/y:

According to the association of Italian banks' bad loans in Italy are worth about EUR 135mld

5. Eurogroup: October 14 (Monday) talks with Troika regarding Greece:

Until then, they are not known to the financial needs of Greece.

6. Obama calls Boehner to his office:

The conversation will be held today.

Most of the information about the euro zone should be negatively perceived by investors as the present bad data on individual economies. Macroeconomic data are at the moment in the background, but this does not mean that it should turn a blind eye to the very poor reports from Europe. French figures look very weak. Both exports and imports are much lower than in July, showing that growth in the previous month were one-time in nature. Even worse is on an annual basis: exports is 5.3% lower than in the corresponding month of the previous year, while imports are lower by 6.4%. What is interesting in France a few months we observe a significant improvement in indicators. Meanwhile, the August trade figures are the worst since 2009.

In my opinion the EUR / USD has already passed peak this year and we should see stronger dollar. Recent strengthening euro is not reflected in the interest rates, which we see more and more spread between EUR/USD and EU FRA. Accordingly with the open declaration of the central banks of the struggle with yield I think it's the dollar should strengthen in the coming days.

Chart 1. FRA & EUR/USD

regards,

oscarjp

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