Thursday update.. What does Bernanke know that we don’t and scary predictions

Markets turned about face yesterday. With sagging equities and the US dollar edging back higher Fed Chairman Ben Bernanke announced that the Fed would keep rates near zero until the end of 2014 and kept the door open for more QE (Quantative easing). All very strange.Just what does Bernanke know about what in store that leads to that policy. Certainly not a booming economy, recovering housing market and lower unemployment I presume. Maybe he thinks a sinking Europe will take its toll on world growth. Anyway the upshot was that equities and commodities rose and The US Dollar was sold off again. EUR/USD which had been as low as EUR/USD 1.2930 has since traded up to 1.3135 in Asia and sits just below now. It has to be said that technical signs point to more upside. I did say that maybe shorts would be tested to their limits and it looks quite possible now. European sentiment seems a little better but listening to various attendees at Davos I hear only gloom for Europe and this from those with fingers on the pulse. Its back to Athens for the Greek debt saga today.The ECB supported by Germany made it clear that the ECB will not be following IMF guidance and participating in the bond haircut so its up to private investors. The rumoured badies of course are the hedge funds many of whom have CRDs (Credit Default Swaps) which would yield them more profit on a Greek default than the voluntary haircut proposed. It seems strange that German politicians including Merkel now openly talk of a default while these negtiotiations persist. The truth is that if a deal is cut it will prove inadequate within the year.
In the UK GDP fell 0.2% in the 4th quarter.Below the consensus 0.1% but close enough to be ok.

Headlines

• Greece… Private investors resume talks in Athens today on Greek debt rescheduling
• US..FOMC says that US interest rates to stay low through to 2014 and ready to take more action(QE) if needed.
• Davos… Merkel in here opening speech dismisses talk of doubling rescue funds
• UK 4th Quarter GDP -0.2% against expected-0.1%
• Gold.. Up through $1700 on Fed comments
• Australia. Ausie$ continues to be in demand. Russia announces intentions to buy in ( Better late than never….maybe)

Just to calm your enthusiasm I thought it would be good to see what some of the gloom and doomers are saying .These are a few of the headline stories from website Bearmarketcentral.com . Some of these people are bearish all the time and get their fame from getting it right once. However, its right to be aware of the doomsday scenarios. We are in the hands of politicians after all

Joe Granville: Dow Industrial May Drop Toward 8,000 in 2012

George Soros: Collapsing US Economy to Spark Street Violence

The Greatest Economic Storm: We are living in the Greatest Debt Bubble The World Has Ever Seen. By M Snyder (The Economic Collapse))

IMF chief urges action to avoid ‘1930s moment’

Nouriel Roubini: Still a 50-50 Chance for Global Economic Meltdown

Gerald Celente on Trend Forecasting and the Crisis of Western Civilization

James Dines: This Will be a Dangerous Collapse & Endgame
 

Friday update.. Stocks and Euro bounce again

With the Italian bond auction passing without too much drama stock markets edged up and in forex markets the US Dollar lost some ground. EUR/USD was back at 1.2950 but the Euros performance against the Yen and Swiss Franc was less convincing. EUR/JPY is holding close to the 100 level but looks destined to break at some time in the New Year.
Data from the US continues to support equity markets but the cloud which is Europe is still hovering.

Headlines

US Jobs data continues to add some optimism to markets
Chinese data softer. December manufacturing data showed a continuation of the slight contraction
Italian 10 year yields over 7% but no large selling pressure
Gold falls to $1522 but recovers. Remains vulnerable to further shake out
Euro zone money supply data continues to show North , South disparity with contraction in Southern Med countries

Tuesday Update.. Euro spooked on Halloween night

Well the pundits were right but even quicker than anyone might have imagined. What began as a reality check day with risk off as equities fell and the US Dollar rose saw a nose dive for stocks and the Euro in late trading. Greece announced it would hold a referendum on the bailout and bingo Halloween and spook time for markets. EUR/USD was sold off down to 1.3830 with a big ** Fibonacci (Technical resistance) level at 1.3827.Overnight though the market has paid little attention to technical support with a move down through 1.3770.
Suddenly the prospect of the biggest own goal in history take shape. Will the Greeks vote for total default. Latest figures suggest a 15% widening of the deficit maybe just makes the pain not worthwhile. Opinion polls already suggest up to 60% think that the recent proposal will not work. Oh dear oh dear I feel another summit coming on.
Now we reach the ´High Noon` moment. Will or can the ECB do something special if required.. Can the Germans be persuaded to part with much more money but more importantly has it gone too far already. An announcement of a common Eurobond might be the only possibility of saving the Eurozone as we know it and that again will have to be led by the Germans.The common Eurobond would probably win over QE or money printing as far as Germany is concerned, they may need both.
Italian bonds were already on the wobble yesterday up at record yields what an earth could happen to them. Its actually a bit scary but perhaps we needed to get nearer total meltdown for anything really vital to occur. Even before this Europe was facing a credit crunch and banks were struggling to survive in some cases, many could face Armageddon.
Buy Gold, Treasuries and the US Dollar I wont even mention the Yen, sorry

** was the 38.2% retracement of the 1.3145 to 1.4249 move, now broken it points to lower levels, but charts may not help you at the moment

Mario Draghi will never ever forget his first day in charge of the ECB

Weekly review…G20 buying time in preparation for Greek default

Although as yet there does not appear anything 100% concrete out of G20 members in Washington the leaks and press speculation are beginning to outline what we can expect.
The major initiatives if you can call them that are all in preparation for a Greek default of some degree but not an expulsion from the Euro zone. To some degree its the same old same old with a G20 meeting in Cannes (get used to seeing that name) in early November for the great unveiling. Depending on who you read, what we will get will be an EFSF (European Finance and stability fund) on steroids. That is leveraged up some how to offer help in Trillions of Euros be it 1 or 2 or more. Banks will be recapitalised amid plans that definitely include some default from Greece and possibly Portugal and Ireland. The idea then is that Italy and Spain can if necessary be supported in the event that they are effectively shut out by bond markets.It all sounds so easy but in truth the Germans in particular have been dragged in against much of their thinking. What they will have to do is sell it to their public. The alternative, a return to the Deutche Mark which would endure strength beyond even Swiss franc proportions will be one of the frighteners used to convince. I sincerely doubt this will be a long term solution to the fundamental floors but if enacted could buy even more time, maybe several years.

So what for markets? Well lets be honest most of the action last week was in equities and commodities which tanked.In contrast currency markets were almost a haven of stability., certainly percentage moves were nothing to compare.In case we forget, it was initially reaction to a not so aggressive Fed move that sparked things off followed by continuing concern of EU debt and European Banks. In commodities particularly Gold and Silver I think we just saw an old fashioned clear out, although not to say we cant go lower, $ 1400 for gold maybe.
Greece is going down as politicians realise that more austerity wont work, certainly with the Greek public. Of course as yet the Greeks have barely tinkered with the real issue, a bloated unaffordable public sector which is sucking the blood from the private sector and individual taxpayers.
With the likelihood of statements coming thick and fast today and early tomorrow it could of course be, all change, but I think not. I would fully expect to see the Euro benefit and the dollar to suffer. EUR/USD which closed around 1.3500 may well open much higher, and depending on the depth of creditability of any new plan be at least in the 1.40s before to long.
German parliament will give the thumbs up this week to the original EFSF plan , which will then be leveraged in terms to be agreed. The only hiccup I see is a smaller nation e.g. Finland screwing things up by refusing to participate. However ,one suspects they or someone else will not want to be the architect of Euro Armageddon.

Finally when analysing recent months in currency markets some things are evident. We have not had a Euro crisis ( a Swiss franc one maybe) The Euro has faired pretty well against the US dollar still holding on to levels above even the purchasing power parity.When I look at Sterling I see a currency that could barely make any ground up against it even during these troubles.
The Euro project still remains deeply floored and we will never see convergence amongst all participants, but it could just get patched up for a long while to come although in nature if not name it will have become a transfer union.

Weekly review….No QE3 but Bernanke doesn’t close the door.

After an initial rush into the dollar following Bernanke´s long awaited Jackson Hole speech, and no mention of QE3 the US currency was then sold off . Far from excluding it he merely left markets to await a longer FOMC meeting in September. So who knows? If things aren’t better by then despite all the misgivings we may just get a dose of the only medicine left in the cupboard (even if the desired affect is somewhat dubious).
In EUR/USD terms we were down at 1.4330 before a bounce to close near 1.4500.
It has seemed better to play the pair from the long side recently and that could continue. However, it will be vital for equity markets to steady up for risk appetite to reappear.European debt markets have skipped the limelight for while but any re-emergence of tensions in Italy and Spain would rock the Euro boat again.
Going forward I think that it will be economic data which will dominate trading in equity, bond and forex markets and there will be plenty next week certainly US wise.
The other dominant thought for equity markets will be banks. Certainly the cloud over European banks remains, their ability to lend sufficiently to business still very much questioned.
Elsewhere notably the Swiss franc has edged lower against the Euro with banks there expected to announce penalties for Swiss franc balances.If things remain calm that trend could continue.However, the strength of the currency was due to safe haven flows generally from the Euro so any flair up will see an upward trend again in the currency. Playing the short view on the swissy maybe a great call one day but it is too early in my view for a major trend reversal yet.
Gold has made some pretty volatile moves recently which could be topping signs. I am not convinced although a stream of higher projections from the banks can sometimes be a reverse indicator.
So I still have no great conviction in currency markets. It is still a time of trading small and very much ´seat of the pants stuff´.That way when we do hopefully get a nice trend we still have some chips left at the table.

Friday Update….Cant wait for the week to Finnish

Baring some late volatility this weeks forex action looks like passing into obscurity.EUR/USD was sold off yesterday as negative news weighed on the common currency However, here we are back over 1.44 again as the market is once again torn between which currency is the worst bet in that pair.
The QE3 debate is still around ahead of Jackson Hole but looks unlikely now. Indeed why waist your last shot before it is needed.
In Europe we are still finding plenty to fret about. Greek 2 year yields have now hit a record 45%,hardly a vote of confidence in the bailout. Also the problem with Finland seeking collateral from Greece goes on with Germany calling it a no go. This problem could still be perhaps bigger than anyone thinks if it were to splinter some of the well off EU countries.Data from Europe continues to be soft and leaves us all wondering where any growth is coming from. The southern Mediterranean countries will always enjoy a more buoyant summer because of tourism but quite what happens come winter might be a different story entirely.
I do hope for some inspiration in terms of some solid currency trend in the weeks ahead. Have a good weekend.
Is gold making topping signals?

Thursday update… Equities rally ahead of Jackson Hole meeting

Equity markets have continued to nudge up ahead of the Jackson Hole meeting in the US. Its difficult to gauge what expectations are from the markets about any special announcements from Fed Chairman Bernanke but on balance its seem a QE3 announcement would possibly be a surprise at this stage. The Euro has been the main beneficiary nudging up against the dollar to EUR/USD 1.4470 while elsewhere a slightly stronger dollar has seen the Euro up against the Yen, EUR/JPY 111.50, Swiss franc EUR/SFR 1.1470 and Sterling even more at EUR/GBP 88.30.
Nothing really major in forex markets as risk taking continues to be subdued. EU tensions remain below the surface and while a better tone from stocks has helped the Yen and Swiss franc weaken a shade we all know that this could about turn any time.
Gold sold off to 1745 are we seeing some topping price action?

Weekly review.. Where is the cavalry coming from this time ?

With equity markets crashing again against the background of worse economic data and downward revisions for growth globally you wonder how an earth Governments can help this time around. In the last recession governments ploughed in more money (which they did not have) and central banks slashed borrowing costs with official rate cuts and then quantative easing in some cases.This time it seems almost the perfect storm as many countries are being forced into austerity drives at time when logically they should be splashing the cash. To me it seems inevitable that Mr bernanke will be forced into more quantative easing, yes QE3. Strangely its as if forex markets seem more convinced than equity markets. The US dollar made no ground up last week despite the sell off in shares. US treasuries may be a safe haven but the dollar is not,well not yet at any rate. While bond markets in Europe helped take some of the tension away ( well the ECB did) surely the next Euro headache is just a matter of time. A common Eurobond has been rejected thus far but I still believe it would be the only real fix it for the Euro and that might last only a few years. Indeed if they did announce a common bond you could expect a very much stronger Euro which would just add to the woes of Southern Europe. At the moment bubbling under the surface we have Finland demanding collateral for their Greek loan and apparently the Netherlands and Austria looking to do the same. As far as the right wing Finnish government are concerned they are against the bailouts and will only contribute on this basis. The real problems will follow if indeed some others do the same. Greece is depositing its loan from Finland back to them so effectively getting no funds.

So with all this uncertainty and forex markets just unsure which horse to back we finished not far from where we started EUR/USD 1.4400 USD/JPY 76.50 and EUR/SFR 1.13. Sterling in fact performed best which has been rare occurrence these last several years. What it does show about the UK, where government bonds have performed well is that by devaluing the currency you make investment more attractive. In the Euro zone for many years peripheral bond markets were treated as surrogate German bonds with a slightly better yields but no additional currency risk.That of course has ended in tears but merely emphasises that getting Eurozone countries converging their economies is still a pipe dream.

Despite all this EUR/USD has actually held up very well so far. It might well be right to play it from the long side at the moment especially if Mr Benanke does announce something at the Jackson Hole conference.However, in current circumstances you wont want to be married to it. In fact as far as currency positions go at the moment I am definitely a one night stand man or even a speed dater

Gold up again shows the current mind set of investors and speculators
 

Friday Update… Shares in meltdown again as Investor confidence slumps

If anyone thought it was safe to go back into the water they were wrong. Equities worldwide have crashed again and Europe is weaker again by 2% this morning.Bank and financial shares have been hammered as markets now begin to discount a recession.By comparison forex markets have been fairly quiet although the Euro has suffered across the board. EUR/USD is back close to its magnetic pole of 1.4250 with falls also against the Swiss franc 1.1270, sterling 86.60 and Japanese yen 109. USD/JPY has been spookily quiet a mere 20 pips lower at 76.45 just 20 pips away from the all time low as markets can almost smell the threat of intervention.
The usual beneficiaries are Gold with new highs against the $ at 1855 but also against the Euro. US 10 year treasuries surged under 2% yesterday before what is probably a temporary bounce. All in all we head into the weekend in crisis. In Europe and the US it seems politicians are just missing the point at the moment. High time they woke up and smelt the coffee while there still is some to smell . No currency predictions, equities will call the shots and hog much of the volatility

Thursday Update.. Here we are again back at EUR/USD 1.4250

Yes that magnetic level is back again in EUR/USD as we gravitate yet again to 1.4250. That doesn’t tell the true story of course. With equities plunging late it the US and Asia we have been down to 1,4125 but with US futures recovering and a better opening in Europe EUR/USD has moved back up. The usual culprits have been on top of the pile with Gold hitting $1800 and the Swiss franc in record mode again. Both these though are back off best levels. Hopefully we get a better equity performance today which will calm things but forex markets remain in the shadow of equity markets for the moment.
Concerns over France emerged yesterday despite rating agencies giving the AAA thumbs up. Europe and growth rates remain the major concerns for equity markets but seems to be overdone. Can anything change the mood I wonder?