EURO sinks as some call a Black Swan moment others the Life of Brian

The markets were dominated by the Irish bail out, threats of contagion and Korean hostilities. All in all, Euro negative and US dollar positive. Technically the dollar made some big breaks and while a confirmation of the Irish 85 billion Euro bailout before markets reopen may temporarily help the Euro it could be very brief.
The markets look like testing the Euro block even more and as a well known British Soccer Manager says………..Its twitchy bum time.
Next week we have the publication of the Wiki leaks which seem to be likely to cause more political than market angst but who´s to say.
All in all, its likely to continue volatile with plenty of opportunities to make and lose money. Stay small and flexible I say.
For those who follow these pages we also update on Twitter which allowed us to confirm our view of a stronger dollar this week. We don’t use it incessantly but hopefully with a useful calls when we do.
On balance I feel equity markets have hung on in there despite everything and have some potential with improving US statistics. However, as markets get thinner ahead of the year end, risk appetite may wane.
The Japanese Yen made little ground against the weaker Euro last week. In circumstances that might previously have seen it strengthen against everything it did not. I continue to see that as an indication that it could weaken further against the US dollar.

The 5 Little Piigs.
Anyway I thought it time to present my own take on the Euro’s problems in my adaption of a well known fairy tale………………. YES….. THE STORY OF THE FIVE LITTLE PIIGS

This is the story of 5 PIIGS who went to live in Euro Farm.
Their names were Jose ,Brian, Silvio, George and another who called himself Jose Zap to differentiate himself from Jose, and because he hates his nickname: Mr Bean.

Off they went to live in Euro Farm which was pretty much run by bigger animals, Angela her side kick Nicolas and a few others who nobody really knew their names.
To start off with life was wonderful for the 5 piigs. They could do what they wanted and made up their own rules. Jose did nothing at all really but kept his head down. Brian worked but spent too much in the Bank Casino. Silvio chased young female piigs around and spent money on cosmetic surgery. George (who should never really have been allowed in) was a lazy sun worshipper who lied about how much money he had and Jose Zap spent too much and really believed he was as clever as Angela and Nicolas.
They all spent far too much money even though in the beginning they were given lots by Angela and Nicolas to improve their houses. In fact they even started to remortgage their houses. It was so cheap they could keep doing it and the friendly people at the Market kept giving them more and more.
However, one year their was a terrible storm. This storm had come from a huge farm a long long way away called Dollar Farm run by someone called Uncle Sam.
Anyway when the storm arrived it changed everything. To start off with everyone at Euro Farm was in the same boat but gradually Angela in particular but also her friends to a lesser extent managed to get back to work mending their houses.The trouble was the piigs had remortgaged so much they could not really afford to repair their houses properly.

Now at this time a very nasty gang called the BMV ( Bond Market Vigilantes) began looking around for someone to attack.
The first house they saw in such a dilapidated state was that of George. They threatened to blow his house down and would have done so easily as he had no money left for repairs.
Worried about Euro Farm being able to continue, Angela and Nicolas devised a plan that they would club together and lend George lots of money. He could repair his house and in 3 years he could start to repay them. George agreed even though he was forced to accept different rules.
The BMV were seen off and for a short while all was quiet.
Then suddenly they appeared again. This time it was Brian who was threatened. He still owed the casino lots of money but was keeping the truth quiet. The vigilantes attacked again. However, they had forgotten Angela and Nicolas´s arrangement. Soon they lent Brian what was required so that he could see off the vigilantes.
The BMV were held at bay but all to soon there was stories that they were skulking around Jose’s house. and even some who said the bigger house of Jose Zap.
Where will it end? Find out in the next episode.

Episode 2 Coming soon.
Will the BMV attack Jose, Jose Zap or even Silvio who had been at the farm almost since the beginning?
Would any of the piigs be able to pay back what they owed in 3 years or would they be forced out of Euro farm?
Would Angela get fed up and leave setting up Deutche Mark farm again which had been so successful? ( There had been rumors that she had encouraged the BMV anyway)
Would Dollar Farm be attacked as they owed so much to a Chinese takeaway they had been borrowing from for years?
Who knows? Certainly not Angela, Nicky or Jose. Tune in next week, and we’ll make it up as we go along.

Forex Weekly Update March 14 2010

Weekly Update

Posted on | March 14, 2010 | No Comments
Dollar and Yen decline as risk appetite continues to improve

The Yen and US dollar declined last week as optimism for recovery extended. World wide equity markets continued there recent improvements and the S&P is hovering around the January high of 1150.
Although losses for the dollar were relatively small ( around 1% against the Euro) the market still remains very short Euro/US dollar. Further gains in Equity markets or even consolidation may push the dollar even lower next week.
Technically the US Dollar index which pushed below 80 last week is close to level that might provoke a bigger mover.
In Euro/Us dollar terms a push through the 1.3850 level could see us back above the 1.40 level and begin a bigger squeeze on shorts:

Sterling was battered early in the week( just shy of 0.92 against the Eoro) after release of trade figures with the deficit hitting a 17 month high. However, it recovered during the week as attention turned the the dollar. Sterling remains vulnerable probably until the election and then even beyond. The lack of a credible plan on the deficit will eventually cause a major negative reaction both in Gilts and the Currency.

The Greek situations has taken a back seat with investors more convinced that they will do enough to be supported by Germany and France. Indeed there is more speculation that a European Monetary Fund will be set up which has helped the government bond markets in the other so called PIGS.
I firmly believe this is merely a temporary pause . Despite all the right noises it seems highly unlikely that sufficient budget cuts can be achieved ( Spain has already jettisoned plans to raise the retirement age from 65 to 67). Of course this may may take months to really surface but Ireland Spain and Portugal will find that tough talking alone will not help them.

Next week sees more data promising increased volatility,perhaps. Notably the German ZEW Survey (Economic Sentiment) and US inflation data.

If we were to see a sustained rally in equity markets and improved economic data together with the abovementioned lull in Euro tensions then just perhaps we may have seen a temporary high already for the dollar. For Euro/ shorts  and Yen and Dollar bulls it could prove very painful.