Market Review:
Moody's, the credit rating agency, announced that due to the debt limit negotiations between the two parties in the U.S. Congress and Standard & Poor's downgrade of the U.S. credit rating, it has significantly reduced its economic forecast for the United States. It is expected that the U.S. GDP will grow at an annual rate of about 2% in the second half of this year, and the economic growth rate in 2012 will be slightly higher than 3%; the growth in the second half of 2011 and throughout 2012 will reach 3.5%. Moody's report pointed out that the possibility of a second recession in the U.S. economy within the next 12 months is 33%, and if the stock price continues to fall, this probability will further increase: every 100-point decline in the Dow Jones Index will increase the probability of another recession. Although Moody's expects the economic recovery to continue, the prospects for growth and job creation have significantly decreased. The company's report stated that the surge in food and gasoline prices, the Great East Japan Earthquake on March 11, the European sovereign debt crisis, and the deadlock in the U.S. bipartisan debt negotiations have damaged the economic outlook. Moody's believes that to maintain a stable unemployment rate, growth of 2.5% to 3% must be achieved, but the company does not believe that the U.S. will achieve this goal in the near term. However, the U.S. economic foundation is very solid, with businesses, consumers, and banks improving their balance sheets, and corporate cash reserve levels are at record highs. Zandi believes that the most important issue now is a crisis of confidence. He believes that in order to solve this confidence crisis, the Federal Reserve (FED) will purchase more U.S. Treasury bonds, thereby lowering interest rates and driving funds into the stock market. Before the meeting between German and French giants, Germany once again reiterated that the issuance of eurobonds would not be discussed at this conference, and warned investors not to have high expectations for the meeting between Merkel and Sarkozy, which once pressured the euro exchange rate, but the strong performance of the European Central Bank (ECB) in the secondary market caused the euro to strongly rebound, with the euro/dollar surging by more than 200 points cumulatively. However, the market still expects that the results of the Franco-German summit will be more declarative than substantial. Data published yesterday by the European Central Bank showed that as of the week ending on the 12th, it had completed bond purchases totaling 22 billion euros (about 31.7 billion US dollars), setting a new record for weekly bond purchase amounts. The European Central Bank began purchasing Italian and Spanish government bonds last week to curb the further spread of the Eurozone debt crisis. Optimists in the market will interpret this number as a positive sign because it highlights the European Central Bank's determination to combat the Eurozone debt crisis. Similarly, pessimists will interpret this data as negative because the European Central Bank will bear the compression of yields. The active actions of the European Central Bank injected a strong dose of confidence into the euro exchange rate. On the eve of the Franco-German meeting, investors seemed to see a glimmer of hope, prompting the euro/dollar to strongly climb. The European Central Bank's bond purchases of 22 billion euros reached a good balance. This not only caught the market's eye, but the amount will not cause too much backlash among the European Central Bank's Governing Council or taxpayers. If there is not much volatility in the market, the European Central Bank's bond purchase expenditures will decrease in the coming weeks. The market is waiting for the important results of the talks between Merkel and Sarkozy. If the results are disappointing, the euro/dollar may face selling pressure again. There is no consensus within Germany on solving the Eurozone debt crisis, and the German government spokesperson said not to expect breakthrough results from the Franco-German summit.
The euro has short-term resistance at 1.4500, fluctuating between 1.4300-1.4500. Investors are advised to trade within this 200-point range. High selling and low buying.
The dollar index fluctuates between 74.27-73.73. Investors are advised to sell dollars at 74.27 and buy euros, looking for a break below 73.73, which could lead to a decline to 73.36.
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