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Key Events In The Week Ahead


From GS' Thomas Stolper on what endless BS to expect out of Europe, together with a few facts here and there:

To some extent it is remarkable that markets continued to rally last week and that Eurozone-related risk premia declined, because at the surface, there has been very little concrete progress regarding the Eurozone fiscal crisis. The extent of Greek haircuts, the details of bank recapitalisations, the use of leverage in the EFSF or not – all these and many other issues remain basically unresolved at the moment. Only one thing is clear, policymakers continue to work overtime while trying to find solutions. Following this weekend’s G20 finance ministers meeting, which also emphasised the increased focus on bank recapitalisations, the Eurogroup summit next Sunday will be the key event.

To understand market reaction, it could be as easy as looking at the last IMM report, which indicated only a small reduction in USD longs. As we have been highlighting in the past, risk premia have been very large across asset classes and certainly in cyclical FX crosses as well. Without additional bad news from either the political or macro front, some short covering in risky assets and unwinding of long Dollar positions was a not unexpected move. Over the course of the week, the trade-weighted USD lost another percent and has not corrected about one-third of the recent rally. In the week ahead, Eurozone politics will likely remain a key focus, and further gradual progress could lead to further unwinding of USD long positions.


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