Emotions are great in markets. One day something matters, the next it doesn’t then it does again. Such has been the case this week with Cyprus. Asia was really worried Monday but the Northern hemisphere less so and then overnight with the Cypriot Parliament voting down the proposed “rescue” package markets have decided that Cyprus really might be Europe’s Amazonian butterfly. DE has written another good piece this morning which I urge you to have a look at but the picture below beside sums up the real implications of the Cypriot debacle – who is next?
Something that I think is worth noting because it means that a fix might be harder this time than it was in the past is the absence from Jean-Claude Junker from the negotiaitions. The wily old Eurocrat and Luxembourg PM is for the first time in years absent from the negotiating process replaced by a 12 year old Dutch Politician (okay he’s not really 12 but you know what I mean) who is an up and comer but as yet lacks the gravitas to command the room. Jeroen Dijsselbloem is the Dutch Minister in question and Fox reports that:
Insiders who attended the talks said German Finance Minister Wolfgang Schaeuble and Asmussen, a fellow German, had called the shots while the 46-year-old chairman, a minister for just four months, was too inexperienced to carry much weight.
“There is a realization, a frustration, that countries outside the troika (European Commission, European Central Bank and International Monetary Fund) and Germany are becoming bystanders in these crucial Eurogroups, and Dijsselbloem is just going along with that, cementing that reality,” said one diplomat from a small euro zone country.
Indeed even Junker surfaced to say that he was disapponted with the way things had been handled telling Der Standard that:
“It was the first time I wasn’t in the Eurogroup. I would have wished for a more gentle approach to small savers,”
Without Juncker to bash the Germans into shape and with an election this year in Germany the cold Teutonic hand seems to be in the ascendancy which for markets means a back down or back flip or compromise might be harder to find.
If this is the case then the trends in markets that we have been writing about will be strengthened over the weeks ahead, specifically, gold higher and euro lower.
A little while ago gold broke lower and it looked like the meltdown had truly begun. But it managed to find some solid support at $1550 and last night traded up to $1615. Gold to me is just another market to be traded. I am neither a bull or a bear just a trader and it became clear a little while ago that it was time for a bounce. Last night’s move almost satisfies that but gold is actually starting to look more not less bullish as it rises.
The charts suggest that is has more in it then just that with the high overnight of around $1615 almost but not quite there. Adding to the bullishness is a report on the seasonality of gold I picked up from the gurus at The Stock Traders Almanac – they said:
gold has enjoyed a period of seasonal strength since 2001 that begins toward the end of March and lasts until late May (yellow shaded box). Last year this trade did not work. However, it has worked in nine of the last twelve for a theoretical cumulative single contract gain of $43,630
Seasonal patterns aren’t guaranteed it is worth keeping in mind. Also worth keeping in mind is the set up of the gold chart.
Below you can see that gold has taken out the fast and slow moving averages and is now back in the middle of the down trend. If the $1619/22 region can be breached then gold is headed toward Fibo resistance at $1639 and if that gives way $1661.
Turning to the euro, I have had a target around 1.2650 for some time now but as noted yesterday morning while it is above the 200 day moving average then the outlook is not dire. Last night saw the euro tested but it is closing above the 200 day moving average. But the downtrend remains firmly entrenched as you can see in the chart below.
There is a very high probability that euro will trade down to the 1.382 Fibo extension of the recent move before the multi day consolidation.
Elsewhere overnight stocks were lower which is a bad sign for the Australian market which broke an important trend support on the close below 5000 yesterday. It looks weak and has a substantial pullback coming particulalry because broker downgrades hit BHP and Rio in overnight trade offshore. In Europe the ZEW business survey in Germany was stronger than the punditry expected but with Cyprus dominating no one cared. Spain was hammered 2.20% lower, Italian stocks dropped 1.59% and in France where the Finance Minister has some issues to deal with stocks dropped 1.29%. The DAX was more subdued falling 0.78% and the FTSE was positively positive compared to the rest of Europe falling only 0.26%.
In the US the data was pretty good with Housing Starts and Building Permits both stronger than expected but Cyprus weighed on sentiment and even though the S&P is only down 3 points just near the close for a lose of 0.2% it was off as much as 13 or 14 points earlier. The ECB announcement that it would provide liquidity to Cyprus buoyed things a little and has actually managed to push the Dow just into the black and it is up 6 points or 0.03% just near the close. The Nasdaq is down 0.27%.
On Commodity markets Nymex crude fell 1.65% back to $92.19 Bbl. Corn and wheat rose more than 1% but soybeans were 0.3% lower. Silver was down 0.11% to $28.91 oz while gold rose to $1615 at one stage.
Data
Kiwi current account and then the Westpac Leading Index in Australia. Eurozone Current Account tonight might be interesting and the German 10 year bond auction is bound to get plenty of bids and then the Fed decision is out tomorrow morning.
Twitter: Greg McKenna
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