Weekly review

 No Chinese Takeaway

The Chinese rescued the week after denying the rumors that they were reviewing European Debt Holdings, confirming the Euro zone as one of the most important Investment Markets.
Hardly surprising when they have half a Trillion dollars worth of investments to protect.
The effect was to reverse the recent decline in Equities Oil and commodities together with the commodity currencies.
The Euro faired less well and thus far has achieved very little in terms of a rebound against the dollar closing just below the 1.2300 level. Against the recovering Australian and Canadian dollars it lost over 4% and 3% respectively.
The week ahead will again focus more on the equity markets for a lead although statistics , ISM indices and Non Farm payroll may add some weight.
Next weekend sees the G 20 meeting in Korea and one suspects voices to try and steady the markets. The worry that the Euro zone led panic will push Europe and perhaps elsewhere into a double dip recession will be high on the agenda.

Technically all eyes will remain on equity markets and on balance the likelihood that we have not yet seen a bottom will hang over markets. The Euro Dollar level of 1,2140/50 remains crucial but the odds are that it will be taken out  if equity markets and risk appetite in general suffer.That will lead to pressure on the 1.20 level

The Euro debate commands ever more press space. Whatever the immediate outcome further out into summer the problems will probably surface but may take a lead from how the austerity measures are reflected in civil unrest or not.
 

Panic ,You aint seen nothing yet. ……..Buy Baked Beans and Gold

What a week eh. Firstly the Euro collapsed closely followed by equity markets.

The EUR/USD was sold off to a 4 year low of 1.2143 on a wave of selling following a announcements from Germany of a ban on naked short selling of bonds. This was seen as a panic measure.
However, the relief of the German government agreeing to the recent bail out package ( all be it by 7 votes) and a bout of intervention by the Swiss Central Bank helped the Euro back to 1.26 plus.
Equity markets which were largely in free fall may have some respite next week in response to Fridays rally in the US.
Volatility surged everywhere with Gold reacting sharply from its recent highs and the Ausie Dollar losing some 6% plus against the US dollar over 7% against the Euro and 9% against the Yen.

So where do we go to? My instinct tells be the heat may be off next week but that may require further consolidation from the equity markets and Euro.
Further out Investors ,hedge funds and other speculators from around the globe seem unconvinced on the Euro and at the very least the growth outlook for Europe as a whole.The dreaded double dip recession is now being predicted in some quarters.

It feels like only a matter of time before we see another bout of Euro selling. Judging by the fall out with Germany over their announcements regarding short selling there seems no real consensus from the politicians who frankly have no idea where this will end. That said , you should not underestimate the political resolve to keep the Euro ideal.

It is a funny old world when less than 6 months ago you could still find articles relating to the Euro taking over from the US Dollar as a reserve currency.

Sterling was largely sidelined but of note it has made very little headway against a much weaker Euro thus far.

Technically the Euro may have formed a short term base but remains for the time being firmly in a downtrend.

And Baked Beans? Well Henz shares been stable at around $47 for the last month (yes, stable) but they were sitting at 36 bucks a year ago. That´s a 25% increase year on year- beats putting your money in the bank by a long shot.

EURUSD- Now That Was a Bigger Bounce

EURUSD surged 250 pips or so following the release of the FOMC meeting notes (Federal Open Market Comitte).The pair rose to 1.2400- the biggest daily gain in almost a year.

The Federal Open Market Committee IS PART OF of the Federal Reserve System and looks after US interest rate policy.

EURUSD Bounced Earlier Today But It Wasn´t a Particularly Impressive Bounce

Well-there was a Euro bounce today, but we´ve seen bigger bounces off bean bags in quick sand quite frankly. Let´s just say it was more Nicole Kidman than Dolly Parton.

The Euro bounced off 4-year low this morning, but the outlook still looks bearish – it´s been slipping back in the last couple of hours or so.

After a four-year low this morning on ongoing euro zone sovereign debt worries and fears that austerity measures will hurt growth, the currency pair floated up a bit as traders cashed out of short positions.

At 1152 GMT, the EURUSD limped back up to $1.2360, but it´s still 7% down in May month, and 14 percent down in 2010 making it the top winner for bears.

The next key support is $1.2135

Against Japanese money, the euro was down 0.7 percent at 113.80 (EURJPY).

GBPUSD bombed down to its lowest since March 2009 at $1.4249 before clawing back to $1.4410. Data showing that British house prices might be cooling was probably the catalyst for that.

We are still bearish on the single currency. It looks like its continuing to head down to $1.20, but time will tell.

Meanwhile, Larry´s playing the Volcanic Ash/BA Strike Lottery and was last seen wandering around Stanstead Airport trying to find a shop that sells Karrimats.

EURO BACK ON THE ROPES???

Now the dust has settled somewhat on the weekend announcements from the EU it seems worthwhile reflecting on reactions thus far.
After an initial surge in the EURO to nearly 1.31 we find ourselves back nearer 1.27 today. The euphoria of Bond and Equity markets has certainly not been matched by the forex markets.
The reasons would appear that the market has viewed the backtracking of the ECB into its own variation of quantative easing as negative. Rate increases in Europe may lag behind the USA and elsewhere and growth will be sluggish on the basis of the fiscal tightening required.
The fact that decisions were not agreed by all members namely Germany (Mr. Weber) you can see that the ECB has compromised itself badly. Any view that the ECB was the Bundesbank in disguise is dispelled.
I would therefore not be surprised to see further Euro weakness and at some point a test of levels nearer EUR/USD 1.20

A consideration if this happens is that we could indeed see some forex market central bank intervention to support the Euro. This if it happened would be done at a time when the market was very short Euros and designed to get maximum effect.
Further out nothing has changed and as I have said before this is throwing even more good money after bad. Can the cultures of Southern European countries be changed or will we see more civil unrest as austerity bites.

As for the equity markets they will continue to take their lead from US markets where Economic recovery at least looks more stable thus far. The technical picture there is still a little cloudy so we wait and see

Τι μια εβδομάδα να δούμε τι κάναμε στις αγορές σας……

 …… or for non Greek readers …What a week see what we did to your markets

It is difficult to describe last weeks events but suffice to say it completed one of the most volatile ever for forex, bond ,equity and commodity markets. The biggest winners in the forex markets was the Jap Yen 4% stronger against the USD which itself was 4% stronger against the Euro. In bond markets the flight to quality saw the German and US government bond markets rally as the blood bath in Greek and other Southern European Countries continued. Equities collapsed everywhere not least the Dow which dropped an incredible 900 plus points on Thursday most in a matter of minutes before recovering 600 points in the same time.
The Greek problem certainly went global. Amazing as it is for a country accounting for just 3% of European GDP, but such is the fear of contagion.

As I write the markets are awaiting announcements from the EU on an Emergency Funding Mechanism which is designed to support Euro members and therefore the Euro. How the markets react will be interesting .Will it be one handed applause or will it put a squeeze on Euro shorts and and also the so called bond market vigilantes’.
It seems that whatever is announced the upshot will be to throw more good money after bad.When the politicians finally realize that the Euro in its current guise is floored and the final cost may be catastrophic.For sure If the so called PIGS were not within the Euro they would not have been able to get to this stage.
The equity markets have been spooked big time and it may well be some time before confidence returns. Risk appetite has been choked and so we will be back to more volatile and uncertain markets.
Good trading opportunities but for Investors not so much fun.

Amidst all this the UK election came and went much as expected. Sterling which had faired better than the Euro lost some ground as the uncertainty of who would actually end up in government dawned on the markets.At this time a Conservative, Liberal Democrat Alliance looks just about more likely. If that happens then Sterling and Gilts may get a lift. However, if that is not forthcoming early in the week then uncertainty and the possibility of a Labour Lib Dem Alliance will weigh on them: Indeed if a Brown Clegg pact happens the markets will vote with their feet at the prospect of a Laurel & Hardy run government.

ps At some point I believe there will be an investor stampede into Gold and other precious metals

GREEK BONDS BUY ONE GET ONE FREE

 The Greek Pantomime Continues

The situation in Greece again dominated the markets although most of the real volatility was confined to the bond markets rather than Forex markets.
Matters came to a head with the downgrading of Greek Bonds to Junk by Standard & Poors. Greece was finally forced to formally request their bailout ,agreeing to a new round of further austerity measures.

The Euro recovered from lows but appetite for the single currency remains poor and any bounce from final EU government approval may prove short lived.
It remains difficult to gleam anything Euro positive from the bailout and even commitment of € 120 Billion over 3 years could still prove inadequate. There still remains the possibility of a large spanner in the works on two fronts. Firstly an escalation of Civil unrest in Greece beyond the May Day street fighting and sustained Union opposition. Secondly there seems a distinct possibility of a legal challenge in Germany on the basis of it being a Violation of European Treaties. Angela Merkel has dragged her feet worrying about regional elections and has flitted between being the fairy godmother and the wicked witch in the whole Greek pantomime.

Most of the major currencies remained narrowly mixed. However, the stock markets looked distinctly edgy last week. The US market as ever seems to hold the key and any further sell off could prompt a much bigger clear out. The Jap Yen which looked to be wobbling itself would of course benefit from this.

Technically the outlook for the Euro remains poor under USD 1.3420 and with current sentiment continues to look vulnerable.

Finally the week ahead has the long awaited UK election. If the Conservatives can squeeze a working majority then Sterling could enjoy a good move up to € 1.20 plus . On a hung parliament while the initial reaction may not be that large Sterling will remain very vulnerable to a sell off. Gordon Brown seems to have surpassed himself and sunk any hope of a labour victory and his reclassification as Junk awaits him.Perhaps he could be repackaged with a bunch of Greek Bonds and sold off. Now who can we think of to arrange that I wonder?