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Fitch’s rating for Greece is back to B-

Greece is on the right path, Fitch reversed the cut made last year in May, giving back the B- rating. This decision is intended to show that the country is still carefully observed but important steps have been taken in order to get to real economic recovery. Even if the end of the year promises not to bring any changes concerning the rating, next year we may see some movements depending on the situation in that period.

The rating agency is motivating its decision based on the real improvements made and the fact that there won’t be a scenario with Greece out of Euro zone. The Economic Adjustment Programme is on track, significant reforms have been made in the labour market and the privatization process is successfully running in present with the first important privatization since the EAP begun. Greece has managed to sell 33% stake of OPAP (Greek Organisation of Football Prognostics).

Good News or Bad News?

The U.S. debt ceiling, which was supposed to be reached on 19th of May, is not getting to its expiration day until the Labor Day because of some cash flows. Therefore, the Congress may relax and search for the optimal solution, but would that happen? Or, in September this year, the United States’ debt will be left with no solution but with a bunch of people who not even in the last minute can reach a deal and will choose again to extend the problem?

Besides all this, the end of this year may also bring the end of Quantitative Easing. It looks like Fed is trying to prepare the markets for the end of this program, an end which will be divided into phases. The purpose seems to be close to be fulfilled, giving the improvements that we see in the labor market so it’s time to stop the printing press.

European Banking Union Will Happen

“We need to take difficult steps in order to get to sustainable and lasting economic recovery”, suggested George Osborne, Chancellor of Exchequer, on 10th of May at the G7 meeting.

The markets are considered to be calm thanks to the measures taken so far but, in order to enjoy this calm, further preventive measures are required. Since the priorities have been set, monetary activism, fiscal responsibility and structural reform, there is left the implementation. The last fashion in the matter of monetary policy is the Quantitative Easing. Countries as United States, England and Japan are already establishing a strong trend which seems to be the answer for Euro zone as well.

After highlighting the fundamental need of structural reforms, the conference continued with the idea of a plan which actually exists and offers the answers for more productive economies, increasing investments and noticeable more jobs crated. This plan has a simple structure and requires the governments’ focus on free trade, changing the tax system which should support more the global investments and working on the weaknesses of the banking system which should make lending more accessible. It has been clearly mentioned that the fiscal and monetary policies of G7 countries don’t target the exchange rates (as mentioned in February) and an important attention will be given to tackle tax avoidance and evasion. Maybe the most important part of all the discussions refers to the steps needed in order to establish a banking union in Europe. Since the steps have already been discussed, we received the necessary assurance to think at the bank union as of the key of the European crisis, a measure which will be accomplished soon.

A warning signal was pulled for Britain, which seems to be the slowest country from G7 (apart from Italy) concerning the economic recovery. There are voices saying that Britain needs to make changes in its policy in order to maintain the stability. Moreover, the idea of stepping out of the European Union is not passing positive signal to the investors. Even if this action has a very low probability of being accomplished, on the short term it may have serious effects (as deterring investments). As Prime Minister David Cameron promised to hold a referendum in 2017 and also renegotiate the relationship with European Union, politicians think that earlier measures need to be taken.


China Is Growing

The latest news about China revealed positive figures,with an increase of supply in money which touched 16.1% comparing with last month 15.7%, and more money borrowed by consumers and businesses. Even so, investors don’t fully trust China as the world’s biggest economy. Considering the changes that may take place in its monetary policy and the focus on an economy more consumption driven, we may see  China as a leader later than 2016, as economists predicted. Also, it’s  important to keep an eye on United States which is doing better and is ready to fight with any economic tool in order to keep its position.

U.S. Unemployment Claims Decrease

The figures for unemployment claims in United States came out at a five-year low. This is the signal which made the Japanese yen touch 100 per dollar, a record high for the last 4 years. In the last period, the U.S. economy showed signs of recovery and Fed let us understood that is sympathetic with the economy and willing to adjust its policy depending on the evolution of the inflation and the labor market.

On 10th and 11th of May will take place the G7 meeting. They may come up with important news as the issue of the banking union in the Euro zone is going to be discussed again together with new rules for the derivatives trading and the Basel III plan (plan which is intended to help the banking sector deal better with the economic stress).

BRICS – A new player in the world’s economy

brics-a new-world-power-15.04.2013

The acronym BRIC (meaning Brazil, Russia, India and China) was first used in 2001 by Jim O’Neill, an economist at Goldman Sachs, to describe the emerging markets, in a report forecasting global economic trends over the next half century. In 2010, South Africa was invited to join the group which changed the name in BRICS. These emerging countries are known for a rapid pace of development, encompassing over 25% of the world’s land, 40% of the world’s population and the competitive advantage of holding important natural resources. Its main competitor is G7, The Group of Seven (U.S., U.K., Germany, Italy, Canada, France and Japan) which is represented by the largest and wealthiest countries on Earth, threatened to be outgunned by 2050 by BRICS.

Why should we pay attention to the countries forming BRICS? Obviously, because those are the countries that promise to hold the world’s economic power in the future.

To have an overview of all the countries in the world we can classify them in developed countries (G7) and developing countries (BRICS).  In only 10 years, the share of global GDP from developing countries has gone from 20% in 2000 to 34% in 2010. For a better understanding of the rapid pace of development of the BRICS countries we can take a look at China which in 1990 accounted for a mere 1.8% of the world’s output while in 2010 reached 9.3%  becoming the second largest economy in the world, ahead of France, Germany and Japan.

In the past few years, the 5 countries developed plans related to the creation of institutions to compete with the World Bank and the International Monetary Fund. The discussions were restarted at the last summit hold in Durban, South Africa. The creation of a new development bank is a complex process that will take time. On the background of an unstable global economic climate, this plan looks more like a rescue plan for countries which face financial problems and don’t trust anymore their monetary policies.

The development bank will better coordinate and invest the financial resources of the emerging countries. Thus, there will be well structured funds which will support the development of these countries and a foreign exchange reserve (acting like a financial safety net) to support a currency crisis or a sudden restriction of capital. China and Brazil, the two biggest economies of the group, decided to trade on their own currency, eliminating the American dollar from the equation. The agreement refers to $3o billion per year trade which will not be affected in any way by a new banking crisis. The trade and currency deal are meant to defend the trade between the 5 countries, thus any other shocks to the global financial market will not be felt.

The Bank is supposed to start with a capital of $50 billion but China suggested that this amount should be doubled and is prepared to make a bigger contribution in exchange of a greater power of decision.

The BRICS’s agenda covers issues including trade, global economy, agriculture, health and innovation, terrorism, climate change food and energy security.

The economic climate on Earth is unstable and the largest economies of the world inspire less confidence and security. An increasing number of countries are facing serious problems and came up with different plans that may or may not be successful to save them from a collapse. On the other hand, there is BRICS, a group of countries with natural resources and new views for a better coordination of the world’s economy.

It’s important to foresee the possible switch of power from West to East, from today’s seven largest economies to the economies forming BRICS.