The EUR/USD is 1.5% away from testing a six year support level at approximately 1.31 which has only failed during the June 2010 Greek driven market selloff. This support level has been tested multiple times since being formed in 2005 (summer of 2008, March 2009, summer 0f 2010 and January 2011). Needless to say the next test could occur as early as this week.
Should this pattern fail next major support does not come in until 1.18 but a much bigger target may be possible based on a head and shoulders pattern at 85 which coincidentally is also the location of another major support level.
Those are big moves to be discussing here but considering the very real threat of sovereign defaults, global asset liquidations out of euro based debt and the risk of some form of euro debasement it is also a high probability. Such a move would put a major bid into the USD.
Europe is in difficulties, that is for sure. With many of the Med countries imploding, and contagion spreading to core Europe, man needs to look abroad for opportunities. The politicians are trying to save the Euro project, which will eventually fall, while the Economies are falling further into the abyss. For the financial reader, it is all figures, but in real life, people are not getting jobs, and struggle to make ends meet. This is creating a dangerous situation, where Europe might feel the “brain drain” symptoms in the long run, just like Yugoslavia and other countries experienced after the crisis those countries went through. Europe is old, tired and a political chaos getting increasingly de united by the day. What we didn’t expect though, was the young well educated would go to countries like Angola. What’s next, Europeans working in factories for the Chinese? Welcome to New Europe, by El Pais;
As the equity squeeze is pinching many “smart” shorts, going into the last month of the year, let’s not forget how things actually behave in reality. The credit market is not easing. The pressure is on, and Italy is still around with its problems, irrespective of the MIB having soared yesterday. With short gamma, and a HFT dominated trading, people can’t hedge accordingly, and therefore we get these extreme moves, but reality has not changed substantially. Italy is selling some 2014 bonds today at 7.89%. You need quite some growth to finance that rate…..Charts below;
Seriously, just let the FED do the job. The ECB is just the junior on the desk. Get the guy with the bazooka to pull the trigger and show the world how it is done. The Europeans can’t hardly agree on the size of the cucumber, how will they agree on what the ECB should be doing. Let central planning go Global. From Al Jazeera;
The European Central Bank (ECB) has been working hard to convince the world that it is not competent to act as a central bank. One of the main responsibilities of a central bank is to act as the lender of last resort in a crisis. The ECB is insisting that it will not fill this role. It is arguing instead that it would sooner see the eurozone collapse than risk inflation exceeding its 2.0 per cent target.
It would be bad enough if the ECB’s incompetence just put Europe’s economy at risk. After all, there are tens of millions of people who stand to see their lives ruined because the bureaucrats at the ECB don’t understand introductory economics. But the consequences of a euro meltdown go well beyond the eurozone.
George Osborne, the chancellor, will be forced to admit that the black hole in UK public finances has increased by almost £30bn, requiring the government to impose years of further austerity on the public sector, http://ftalphaville.ft.com/thecut/2011/11/29/769441/uk-faces-bigger-budget-hole/
Japan’s jobless rate rose more than expected in October, says Bloomberg, reaching 4.5 per cent in October compared to 4.1 per cent in September. Bloomberg’s survey of 29 economists’ came up with a median estimate of 4.2 per cent. Panasonic and TDK are cutting jobs as the yen’s continuing strength threatens erodes export profits, http://ftalphaville.ft.com/thecut/2011/11/29/769361/japans-unemployment-rate-jumps/
Germany is the only country in Europe that can act to save the eurozone and the wider EU from “a crisis of apocalyptic proportions”, the Polish foreign minister warned on Monday in a passionate call for more drastic action to prevent the collapse of the European monetary union, http://ftalphaville.ft.com/thecut/2011/11/29/769261/polish-minister-calls-for-germany-to-act/
S&P could announce a negative outlook on France’s AAA rating within a week, reports La Tribune, citing several sources. The newspaper says an announcement was expected last Friday but was postponed for unknown reasons. http://ftalphaville.ft.com/thecut/2011/11/29/769231/sp-reportedly-about-to-lower-frances-outlook/
and much more…
We hinted about the rally on Friday evening, “Yes, it was an interesting session today, but the move up earlier today was probably telling us to cover the shorts. Despite our bearishness, we believe the market is reaching levels where the reward of shorting further is limited.”. Friday’s candle was a very nice reversal candle, telling all the new smart shorts to look out for the upside, and upside we got. Our only recap commentary today is actually the low volumes theme. A rally in panic with low volumes, will only produce more volatility and not a sustainable reversal to form a base. This is what HFT dominated market produces, frustrated hedgers, chasing their tails. Volume Chart of the Global Squeeze below. Not very impressive.