Bank of America said EU authorities will pull out the stops to keep Greece in the system as they weigh the full dangers of contagion. Should that fail, it expects a series of dramatic moves.

Major international banks are optimistic that there will be a rally and a complete rebirth in the stock market in case Greece proceeds to exit the currency union. They believe that in case of such an eventuality, global authorities will have no other option but to flood the world system with massive liquidity.

The BoA has announced that expects a severe short-term clutch in risk investments after more speculative funds slow down positions starting with a climb in tattered bank stocks along with Club Med Bonds. The bank also expects the bank to rise by 10 points to hit $1.40 against the USD following a slump to $1.20 right after the panic.

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The benign result suggests that the ECB comes in handy with enough support from the US Federal Reserve, BoJ, and other important central banks in line with 2008-2009’s concerted action.

The Bank of America insists that the EU will relinquish its limits in order to help Greece remain in the Union as they consider the real risk of contagion. In the event that the idea does not work, it anticipates a couple of dramatic actions.

The ECB plans to cut borrowing rates, give more Quantitative easing, and launch a mass stock buying program in Spain and Italy. They will also provide more capital to banks and develop a pan-European scheme of deposit securities. All these efforts are expected to have a major impact on the Euro.

David Bloom, the chief of finance at HSBC says that the crisis in the Euro is now over. He also adds that key central banks have an obligation of offering massive help, which will serve as a soothing ointment for the markets. David also noted that the Fed has its doors open for additional QE promising that a strong rally is on the way.

Mr. Bloom expressed his dissatisfaction with the way the ECB is handling this matter saying that it does not have to wait for compliance from the EUM’s wayward nations. He said that by doing so, the bank will be holding everyone right at the bottom of the deep financial pit until they call for help.

A monetary union without the burden of Greece is likely to seen as a strong bloc by the traders, but a lot depends on how Greece will fare.

Right now, the worst that can happen to the currency union is a double whammy. This can only happen if the authorities are unable to control the wide infection of the EMU and Greece finds its way out of the current crisis. This means that Greece would make profits from the devalued currency.

Bloom says that in case of such an occurrence the Euro would collapse dramatically. He is however certain that such a scenario is unlikely.

Gary Jenkins, a bond adviser has however warned that people betting on a collapse should be careful saying that world central banks are expected to flood massive liquidity that will render the LTRO a small change.

He also said that this is the time for the ECB and EU leaders to show that they are financially capable of purchasing debts on the minor market. He also noted that the situation right now is either quasi-financial union or a bust.

The bond adviser also warned that it will be fatal for the union if Greece were exited in acrimony. Such an event would cause massive losses of up to 200billion Euros for the currency union. This will in turn damage the much needed political consent to build the EU financial union and put Euro zone members together. He therefore urged the authorities to ensure that whatever they come up with is for the benefit of Greece.

Seeped out reports from Berlin propose that Germany’s treasury has created a plan that would see them rescue Greece with funds from the EU in case of a return to drachma.

Bank of America suggests that the exit of Greece from the Euro and the contagion would cause a drop of 4 points in Euro zone GDP. It also suggests that the recovery from such damages would be slow. Range for financial incentive is largely worn out. China together with the up-and-coming powers is unable to stabilize.

The Premiere is expected to give a speech today in which he warns the Euro zone leaders that the single currency is at crossroads. He also vows to do whatever he can to save the country.

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Cameron’s intervention seems to reinstate a statement by the BoE’s governor, Sir Mervyn King, that some European leaders are only making the situation for the currency worse. He warned that this behavior is only causing more frustrations to the Euro zone.

This warning comes at a time when political situation in Greece seems to be deteriorating and the deviation between Germany and France continues to increase severity measures.

The Premier is also expected to substantiate a warning he gave yesterday during the Prime minister’s question time, when he noted that the union leaders couldn’t dismiss a decision on the next course of action. He had warned that the Euro is on the verge of breaking up if it does not pursue the path of making up. Cameron also insisted that this is an important decision that the leaders have to make immediately.

Cameron is expected to touch on the need to have a committed and stable Euro zone which heavily relies on an effective monetary firewall. Well-regulated financial institutions and supportive financial policy are also imperative. Failure to have these considerations the union will remain in the uncharted territory, which exposes everyone to huge risks.

He also expected to caution the leaders that he is willing to take any action to save Britain.

Amid growing tension across Europe, the ECB has halted its financial support to several Greek banks fearing that they are bankrupt. These banks have been forced to rely solely on Greek central bank for financial support in order to avoid a run on investments.

So far, political parties in Greek have stopped attempting to create a partnership government, as elections have been called on June.

Greek’s left-wing politician, George Tsipras, yesterday accused Chancellor Merkel of taking Greek people for a ride. He has expressed his concern about the crisis a month before G20 conference in Mexico. Many view the meeting as the last solution for the European crisis.

Spain’s Prime Minister, Marion Rajoy, has also warned that most stressed European economies face the risk of a borrowing freeze, adding that he is burdened with astronomical prices to fund Spanish debts.

Stock markets allover Europe suffered a further plunging in share prices as the FTSE-100 indicator went down to 0.6%.

Chancellor George Osborne has also accused Euro leaders of making the crisis worse through speculations of the Union’s fate.

However, many senior leaders and economists have dismissed this claim by formulating contingency plans. Sir, Mervyn King has warned that the Euro zone is solely to blame for the collapse.

He also confirmed that there are contingency plans for Greece to exit the Union but failed to give more details.

A senior city leader and a former treasurer of the Conservative Party, Michal Spencer, said that he knew that Greece was going to exit the Euro, adding that it was a question of when and not if. He suggests that the exit will have a positive impact on Greece in the far future.

The BoE cut its speculation for development this year to about 0.8%

The bank expects the upcoming Diamond Jubilee bank vacation will reduce the GDP by 0.5% points.

Their estimates also indicate that a more sustainable economic growth will be experienced in 2014.

Mr. Cameron is expected to dismiss the call for an overhaul of Government’s plan by slowing down public sector cuts.

He warned that it is important to reject any calls to retreat. It is also expected that he will emphasize the need for the government to take action to spark a sustained economic growth.

There has been some notable improvement in the EUR/AUD pair since it has moved from 1.2130 to around 1.2920 since Feb 2010. Noteworthy is the fact that this improvement is just beneath 50 percent retracement of a downtrend in the period between Nov.2011 to February 2012. It moved from 1.3805 to about 1.2130. It is also important to note that the 1.2920-1.3015 level indicates support of stagnant prices in the period between July and December 2011 when the support collapsed.

The market is currently bearish with resistance around 1.2920, which creates a divergence with RSI in the chart. This indicates a slowing uptrend and draws speculations for a range-bound market, at least, if not the reverse. The Marketing is still testing a growing trend line since it is now breaking beneath 1.28. Further break beyond this level suggests topping, and the likelihood of a reversal. Right now a break beneath 1.2750 is required in order to end some near-term support along with the increasing trend line.

EUR/AUD 4H Chart

According to 4H chart, a break beneath 1.2770 indicates a break out of a topping pattern. In case the 1.2750 is cleared, it would also do away with the trend line and the 4H 200SMA. And in case this top succeeds a pullback to move back over the 1.28 level will be impossible. Anything beyond 1.2850 suggests that it is time to forget the bearish outlook. Considering the daily trade chart, a break beneath brings forth the 1.2570 pivot. And beneath 1.2550, we get the 1.2130.

The slowdown in China continues to weigh on the Australian dollar, while the Euro remains the main focus especially due to the crisis in Greece.

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Francois Hollande, France's president, right, and Angela Merkel, Germany's chancellor, shake hands in the courtyard of the German Chancellory ahead of the Franco-German summit in Berlin, Germany, on Tuesday, May 15, 2012.

Prepare yourself for some amusing talk!

• Merkel: Very rigorous European program ahead
• Merkel: France and Germany know the role of Europe
• Working in harmony before May, June EU summits
• Work on financial and growth deal continues for June meeting
• She and Hollande require Greece to remain in Euro; united offers to assist Greece
• Greece must support Troika conditions to be given aid

Hollande:

• Cites companionship involving France and Germany
• Wants to indicate faithfulness of Franco-German ties
• Wants to join hands with Merkel and others to support the bloc

According to Dow Jones-FXCM USD indicator, the dollar has moved 0.11% higher than the open after climbing 70% of its standard accurate range. This makes the greenback appear balanced to go up in the next couple of days following the ongoing recovery of the uptrend channel. However, with the fall of the 30-minute qualified strength indicator back out of overbought territory, and the oscillator creating a couple of lower highs, the minor pullback might definitely turn into a huge correction, and the disappointing divergence might pull the pair back to about 9,900 as a test for short-term support.  As investors and other market stakeholders wait for the FOMC meeting minutes due to be released tomorrow, it is expected that the dollar consolidate may move into the week’s center, while the new batch of Central Bank expression may support the reserve money in case the Central Bank carries on its bid to lower its dovish tone for financial policy.

While it is expected that the FOMC minutes will emphasize this week’s main event risk, there are speculations that the Federal Reserve will be continue expanding financial policy further. However, there are fears that a rift might develop within the FOMC since the chairman Mr. Ben Bernanke is of the view that there is likely to be another huge asset buying program. It is now apparent that more FOMC members want to get out of the easing cycle since the economy is gradually recovering. Another scenario that is expected to emerge is that of the Central Bank officials becoming more pessimistic this time due to the current stickiness in the fundamental price increase that draws speculations for inflation.  This is expected to cause the group ignore its 2014 pledge forcing the FOMC to embark on discussions about exit plan as the largest global economy gets on a more sustainable recovery path. While the comparative strength indicator continues to show an uptrend since the start of this month, we still expect a run near the 78.6% Fib near 10,118. It is also likely that the financial policy statement might reinforce our optimistic call for the dollar in case the Fed does away with its easing phase this year.

The greenback strengthened against two major components including a 0.57% drop in the Euro and a 0.30% in the Australian dollar.  While investors expect the Reserve Bank of Australia to further its easing phase to the second-half of the year, the expected minutes may reinforce a disappointing position for the well off currency forcing the Central Bank to initiate rate cuts in an attempt to deal with the sluggish recovery. Since the government is compelled to set a budget surplus of a $1.54Billion for the next financial year, the need to balance the country’s finances allows the RBA to shore up the weakening economy. In such a case any dovish statement might spark a fresh selloff in the pair since more investors continue to bet for lower interest rates.

Oil prices have now hit a five-month low following a drop of more than$2 per barrel on Monday. This comes after worries about Greece and JP Morgan massive loss frightened traders.

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The price of crude in the U.S. dropped beneath $94 per barrel on Monday although it has managed to recover a bit.

The ongoing crisis in Greece and its expected fallout seem to be dominating the investors’ minds. In case Greece falls out of the Euro zone, it might trigger recession in Europe which would then affect oil demand.

Analysts have voiced their concerns saying that the market are pricing in darkness. Their greatest worry is demand growth while the EU’s maladies expand.

This doubt is forcing the investors to abandon assets such as stocks and commodities to go for safer bets such as bonds.

Gas prices: Headed for a Further Drop

According to the director of market analysis at Tradition energy, the amount of investors who hold contracts that bet on increasing oil prices dropped by 33% last week, the biggest drop since 2009.

He also added that there is a reduction in risk as doubts about Greece increase.

Prices for crude oil dropped from $110 per barrel during winter, falling by about 8 percent in the past few weeks.

The sell-off had been triggered by negotiations with Iran over its nuclear program. Tensions between the two countries had forced the crude prices up for the better part of winter.

The sell-off is currently benefitting drivers, while gasoline prices seem to have increased earlier than expected.

The increase in oil cost earlier this year made most analysts to predict that gasoline prices would go up to $4 per gallon.

Last month, gas prices climbed to almost $4 per gallon, but they have been pulling back to around $3.73.

This draws speculations that the loss might cause tougher regulations in the fiscal markets.

The Chinese flag flies outside the People's Bank of China in Beijing.

China has for the sixth time lowered its reserve in order to fund its financial system so that people can borrow at lower interest rates. China hopes that this move will help to pump economic growth after reports indicated a slowdown in economic growth.

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PBC has announced that reserve ratios are expected to drop by 50 bps on May 18^th. The statement that was published on the bank’s website also said that the level for well established credit institutions will drop to 20% according to the previous statements.

China’s Prime Minister Wen Jiabao is of the view that China should pay more attention to the country’s growth instead of combating inflation and containing property prices. The country’s import growth stopped in April as production output increased at a very slow pace, in fact the slowest in three years. Yuan loans also dropped this year, and the effect was felt globally just like the current Euro crisis.

There is still a retarded growth with more external risks becoming apparent. Liu Li-Gang, a Chinese economist, said yesterday that the next cut might be coming in mid-June.

This slowdown is expected to have a negative effect on the global economic recovery as redundancy in the U.S increases. Some Euro zone members have started discussing the possibility of some members exiting the union and how to manage the collapse.

Extra Cash

According to a report from the ANZ, the 50 bps cut in February added an extra 400 billion Yuan to the banking system. UBS AG also estimated the amount to hit 350 billion Yuan.

Drop in Fresh Loans

BoC, China’s 3^rd largest lending institution, noted that fresh loans declined by 17% to 247 billion Yuan in the initial quarter of the previous year. Profit growth dropped to 10% from 10.8% in the preceding period.

The speed of China’s growth has been quite reasonable for the last five quarters as Europe’s deficit crisis gathered exports and government control on credit and house purchases affected domestic demand.  GDP went up by 8.1% in the initial quarter of 2012 from the previous year, down from 8.9 percent pace in the last quarter.

On May 11^th the BoA cut its approximation for China’s 2^nd quarter growth to 7.6% from 8.5% and decreased its annual growth estimate to 8% from 8.6%. Wang Tao, also reduced her GDP estimates and export growth predictions for 2012 to 7% from 10%.