Weekly Fundamental Preparation of Currencies

Euro Extends Losses as Greece Threatens to Drop Euro


by Kathy LienDirector of Currency Research, GFT



Greece has been tossing threats at the EU with the goal of pressuring them to come up with a financial aid mechanism. Last week, they threatened to go to the IMF if no aid is provided and this morning, they upgraded their threats by saying that "if no EU support mechanism is decided soon, the euro will make no sense." With words as severe as these, it is hard to believe that Greece does not need aid as the Prime Minister and other EU leaders have repeatedly suggested. Why would the Greek government would put so much pressure on EU leaders if they do not feel that they would need to utilize the support mechanism very soon. Opening up a Can of Worms
Although Greece only represents 2 percent of the entire Eurozone's GDP, the mere possibility of a member of the Eurozone dropping out the monetary union would not only be a huge embarrassment for the region but it would also open up a can of worms. Spain and Portugal are in a similar but less severe situation and if Greece seriously considers leaving the Eurozone, everyone will start to wonder if the entire Eurozone will crumble. The viability of the Eurozone will come into question and as we have seen today, the sheer possibility of this becoming a reality has pushed the euro towards its 10 month lows.
Last week, the Greek Prime Minister said if EU leaders fail to come up with a bailout package by their March 25 to 26 meeting, they will consider going to the IMF for aid. Unfortunately these are the problems of being a part of a monetary and not a fiscal union. The U.S. for example would never go to the IMF if California went bankrupt but if they did, we could imagine what type of impact it would have on the U.S. dollar because it would suggest that the U.S. government does not have enough money to bail out one of its own.
What Will a Greek Bailout Look Like
Although the German and French are having a difficult time agreeing on what type of lifeline to offer to Greece, the intensified pressure by the Greek government could force a compromise. In our opinion, the final bailout package will include a combination of bilateral loans with the IMF as a final backstop. Germany is a major player and the fact that did not even want Greece to be on the agenda at this week's meeting means that it will be a heated discussion that will culminate with a watered down support mechanism for Greece - but that is still better than no support at all. Germany believes that it would be political suicide to ask their citizens to pay for the problems of another country but France and Italy are adamantly opposed to Greece knocking on the door of the IMF. German Chancellor Angela Merkel said that in the absence of a willing European lender, the “IMF would probably have to be the way out right now if action were to be taken” and even went a step further to add that there should be a mechanism to expel countries out of the Eurozone if they persistently break the Treaty’s rules. Although she made it clear that this was not a jab at Greece and is more of a long term consideration, it could still affect Greece if they fall back into their old ways after this crisis is resolved.

The Day Ahead: U.S. Existing Home Sales

Attached Image (click to enlarge)

European Factors-Shares set to track Wall St rally





PARIS, March 24 (Reuters) - European equities were set to rise on Wednesday, adding to the previous session's gains and tracking a rally on Wall Street, where both the Dow and the S&P 500 hit 18-month highs.
But the gains could be limited by lingering worries over Greece's debt problems ahead of an EU summit starting on Thursday. The euro dropped to a 10-month low against the dollar and to an all-time low against the Swiss franc on Wednesday as investors doubted that euro zone leaders would come up with a quick rescue package for Greece at the summit.
Financial spreadbetters expected Britain's FTSE 100 to open 15 to 17 points higher, or as much as 0.3 percent, Germany's DAX (Xetra: news) to open around 18 points higher, or as much as 0.3 percent, and France's CAC-40 to open 9 to 11 points higher, or as much as 0.3 percent.
"A late session surge on Wall Street is setting the mood for Wednesday's trade in Europe," IG Markets analyst Ben Potter wrote in a note.
On the macro side, investors awaited Germany's Ifo index and U.S. data on durable goods, new orders and new homes, but the main focus will be on the UK budget. "There's real scope for (the budget) to have a damaging impact in banks, not just in London but across the globe, depending on the extent of any tax package that is proposed, although the expectation is that other sectors --especially consumers-- will be left relatively unchanged as the government is keen not to stifle the recovery," Potter wrote.



Dollar rises as euro hits record low vs. Swiss franc

The dollar rose against major rivals in Asian trading Wednesday, getting a lift on cross-trading as the euro sank to an all-time low against the Swiss franc amid ongoing fears of fallout from Greece's debt problems. The euro reportedly slid as low as 1.4232 Swiss francs on the EBS trading platform, and as low as 1.4229 francs according to FactSet data. It was recently trading at 1.4246 francs, down 0.1%.
Traders say the Swiss National Bank has intervened on several occasions over the past year in an effort to slow the appreciation of the franc against the euro, but has apparently stopped doing so recently.
Earlier this month, the central bank repeated a pledge to make further interventions, if needed, to prevent an "excessive" rise by its currency against the euro, surprising traders who had expected the bank to soften its stance. Read more on Swiss currency policy.
The SNB's Wednesday absence in markets as the Swiss franc plunged "may well be in response to the fact that based on the U.S. Treasury's mechanistic approach to ranking currency manipulation, it is arguably the case Switzerland has a higher chance of being named a manipulator than China in the 15 April 2010 U.S. Treasury report on International Exchange rate policy," said Sue Trinh, senior currency strategist at Royal Bank of Canada, in a note to clients.
Against the dollar, the euro fell to $1.3414 from $1.3512 in late North American trading on Tuesday. The British pound traded at $1.4968, down from $1.5041.
The dollar index /quotes/comstock/11j!i:dxy0 (DXY 81.15, +0.25, +0.31%) , which measures the greenback against a trade-weighted basket of six major currencies, rose to 81.231 from 80.825 late Tuesday.
The dollar rose to 90.55 Japanese yen from 90.42 yen late Tuesday.
On Tuesday, the dollar rose against the euro and a basket of its rivals as ongoing uncertainty over European Union aid for Greece weighed on investors' minds

Portugal Debt Rating Cut by Fitch on Worsening Finances

http://www.youtube.com/watch#!v=OdmC...K18&playnext=1

The Dollar Prophecy: What the Surging U.S. Dollar Signals for Global Equities


Overview
Over the past 18 months, the inverse relationship between the US dollar and global equities markets has proven to be the single constant in an otherwise uncertain economic climate. When equities markets reached their nadir in March, 2009, the US dollar was sitting atop its highest levels, though much of that value would be lost in the equities-rebound that would follow.


Since December of last year, the US dollar has again exhibited tremendous strength, most notably against the euro and the sterling, yet equities markets remain generally unscathed. Though some might view this recent divergence as evidence of a changing relationship between the two asset classes, the more probable explanation is that this divergence is a temporary event doomed to be corrected; that is to say, we are bearing witness to The Dollar Prophecy signaling an imminent decline for equities markets.

The Euro
Weighing heaviest on investors of late is the ongoing turmoil in the eurozone, where the potential for credit downgrades and defaults on debt are a daily concern. Earlier yesterday, Fitch Ratings downgraded the creditworthiness of Portugal to AA-, issuing a negative outlook that may lead to a second downgrade down the line.


More prominent, however, are the concerns surrounding Greece’s debt obligations and the failure of the EU to allay those fears through some form of resolution. During a radio interview with Bloomberg earlier yesterday, UBS deputy head of global economics stated that a Greece default on its debt obligations will occur “at some point.” He continued:

I think it’s in an impossible situation. … Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea.

In trading yesterday, the euro remained in free fall mode, lacking both the fundamental and technical supports needed for a reversal. The chart below, click to enlarge, of the euro (FXE) overlaying the emerging markets index (EEM) clearly depicts the downward pressure that the currency is facing as well as its relationship to global equities.

http://static.seekingalpha.com/uploa...ook_origin.png

Note as well the December divergence between the euro and the emerging markets index and the price action that follows. While the EEM remains near its recent highs, it appears to be struggling to make fresh ones, potentially signaling the imminent correction that The Dollar Prophecy wouldpredict.

The Sterling
While the eurozone has dominated headlines in recent weeks, the UK economy deserves its fair share of coverage as well. Speaking days ago during a CNBC interview, Bank of England policy maker, Andrew Sentance, called attention to the risk of a double-dip recession in the UK:


"I have to recognize that there is some risk of a double dip recession but it is not the central forecast," Sentence said. "We would have to see some factors that would bring that about."

While Sentance maintained a relatively upbeat front vis-à-vis the UK economy, stating that a double-dip was unlikely, barring any “big shocks” internationally, the same cannot be said about the futures market, which overwhelmingly favors the double-dip scenario. In fact, as Bloomberg recently reported, Sterling bears outnumber their bullish counterparts by a margin exceeding that which existed when George Soros took down the Bank of England – and by a factor of 8, no less. Add to that a budget deficit in the UK at which even Greece would balk and the sterling’s downward spiral begins to makes sense.

The chart below, click to enlarge, depicts the sterling (FXB) against the emerging markets index.

http://static.seekingalpha.com/uploa...ook_origin.png

As with the euro, the sterling’s downtrend resumes in December, 2009, at which point it diverges with the EEM. Once again, The Dollar Prophecy would predict a correcting EEM and the resumption of the inverse relationship between the US dollar and global equities.

The Trade
There are two ways in which traders might take advantage of The Dollar Prophecy. For those with a strong directional bias, the trade is simple: short the GBP/USD and/or the EUR/USD. In fact, the diehard bears among you may go so far as to buy puts on the EEM as well, betting that the index will lose
value. Alternatively, one might employ a more nuanced, mean reversion strategy. In this case, the trade has two legs. The first leg is to buy puts on the EEM, betting again that the price of the index will fall. The second leg is to buy the GBP/USD and/or the EUR/USD. The expectation for this trade is that the values of the index and the currencies will begin to converge.


Disclosure: FXB: no position; FXE: no position, EEM: no position; Short EUR/USD, Short GBP/USD

4hr Dax30. resistance forming at 6139.50. current candle is an inside bar. actually it was but in the picture it's breaking below the last candles body.

LEADHO 4hr candles. strong bounce from 91.00. inside bar but above yellow i-cia average.

ALUMHO 4hr candles. Bearish configuration. 99.90 is a meaningful area of resistance as is 99.45. A break of support of 99.00 may lead lower.

Day chat GAZP. Russia's Giant Gazprom breaks below key support 162.30.

Gold 4hr candles. Gold breaking above resistance of 1096.27. looking 3 candles back there was a very good decision candle setup and looking 10 candles back there was another decision candle setup. both could have been bought for substantial gains. Perhaps the dollar isn't as strong as we were led to believe. this however may be a whipsaw above resistance and we'll have to watch closely. I don't think an uptrend / strong uptrend is etched in stone just yet.

I just closed short earlier on USD/JPY. This is 4hr candle chart which shows a wall of resistance (R1 92.70, R2 92.77, R3 93.13). However I closed my short to lock in weekend profit. Looking 2 candles back there is a perfect looking inverted hammer. It is possible to go higher however a close below that inverted hammer will nullify it.

A very ugly and unstable 4hr chart pattern of oil. look at that candle 15 candles back. Then we have a couple of gaps. Wow this doesn't look nice. 11 candles back we have a candle with very long tails. actually sets up a good short there but wow would you want to touch it - I wouldn't. were at the 80 level on top of that and there's 2 unfilled gaps. I won't even try to give my impression here.
NEUTRAL
Resistance at 80.82
Support at 79.40

the inverted hammer was only on Broco but here you can see the following 4hr candle breaks below it. gold is also firming.

92.66 now solid resistance. 92.03 support. if support breaks the daily low at 91.75

gold and oil retreating

usd/jpy 4hr chart. resistance holding. barely.

Eurozone Puts Up A Safety Net For Greece

By: Mike Campbell

To the surprise of nobody who ever thought about the situation, the Eurozone countries have agreed a plan that puts in place emergency funding for Greece should it prove impossible for her to get funding from the usual sources. The prosperity of major European states like France and Germany is tied to the stability and viability of the Euro and it was quite certain that the Eurozone would act to protect their common interests. The only surprise is that it should have taken this long. Of course, the dwindling value of the Euro makes European (Eurozone) exports cheaper for the rest of the world to buy. That competitive edge will help Eurozone countries to recover from the global financial crisis more quickly and should boost employment within the zone. In essence, the market has provided a devaluation of the currency which the members of the group could not have done themselves. Of course, there has to be a hard bottom to such a policy and a very important factor in the equation is investor confidence in the Euro, so the move is timely.


The plan that was agreed in Brussels, yesterday, puts together €22bn in emergency funding that can be tapped if the usual funding channels open to Greece fail. Two-thirds of the money would be provided through co-ordinated bilateral loans with the final third, presumably, being provided by the IMF. The plan would require the assent other 11 EU members who are outside of the Euro and would need the unanimous agreement of the rest of the Eurozone members should Greece ever need to call on the facility. The plan is not so much a practical tool to help Greece as a clear statement of intent from the block that the Euro will be supported should it become necessary.

US equities still holding on to gains

gold rockets higher.

multichart