EurAnalysis

...and to top off the weekend, here is our favorite publication...

Things That Make You Go Hmmm

Probably the most interesting part of this week's "Things That Make You Go Hmmm" is this...

The turn in the bond market is absolutely the
most important thing to be watching for currently
because when it comes, and once it picks
up some steam there will be no stopping it. It
will either end in financial repression or collapse
- or both.

In the next decade alone, 29 countries (EU-
17, US, China, Canada, Japan, UK, Brazil, India,
Mexico, Australia, S. Korea, Turkey and Poland)
will between them see $36.8 TRILLION in debt
maturities and, in a world without fear, the rates
at which they will need to refinance their borrowings
will be markedly higher - too high, in
fact, for many of them to be able to cope with.
At that point in time, no amount of Quantitative
Easing will be enough to fix the problems facing
the world’s central banks because once the fear
of collapse turns to fear of the sovereign bond
markets, the game is over.

...and one more thing.

Reuters has been kind enough to release the “Second Economic Adjustment Programme for Greece” - a 195 page blueprint that Greece has to follow (unlike the first one, which it kinda, sorta ignored) in order for the money to keep flowing (money to bail out Europe’s banks that is). We can save you the reading: below is the only chart of note. This is what the European powers expect Greek GDP to do. It needs no further commentary.




http://www.zerohedge.com/sites/defau...20forecast.jpg

Just popped in to drop this for your amusement.

I read a post by Phoenix Mgmt in the news section of FF and I loved it, so I'm reposting it here. I hope Phoenix Mgmt doesn't mind


The best buy and sell entries come from shorting after a strong buying spree and buying after a strong shorting spree. It took BALLS to short when price first hit 1.3230, but then it just traded in a tight range for weeks. Then news finally broke us out to 1.3320 last time, but it retraced all the way back to 1.297. It took BALLS to short at 1.3320, but this is how the big players and smart money trades. It took BALLS to long after that huge move back down to 1.297, and price jumped all the way back up to 1.3485. It took BALLS to short from there and now price is back to 1.3. Again, it took balls to long from 1.3. The only difference between then and now is those moves were all driven by huge news events--LTRO and the resolution of Greek bailout--that's all behind us now. Furthermore, the Euro seems to be decoupling from the risk on paradigm somewhat now (correlation is weakening).

So where are we at now? Going straight back to 1.33 or 1.34? No, and not because of some stupid bank analysts--because the things that happened last time to allow price to break above 1.32 AREN'T IN PLAY ATM. The situation is different. Longing and shorting blindly without having a target destination in mind is gambling and mindless herd trading.

The EurUsd has been in a VERY tight trading range all year. It's not going to just suddenly break out on virtually no news and weak fundamentals for the Euro. One day of bullish or bearish price action isn't a trend. If you were smart enough to long early in the trend's price action great, but only an idiot jumps in at 3185 hoping it will keep running. It obviously got stopped dead in its tracks by some big money before it could even touch the top of the daily 3190 (huge supply/resistance level on EVERY time frame here). Any further upward movement now will be a real battle. The path of least resistance is back down, where there's virtually no technical support formed until 3090. One thing about big fast runs is that they go fall as fast as they rise and vice versa. It's scary to stand in front of a rushing bull or bear, but that's how most of the best traders trade, and that's where all the best entries in trading come from.

I feel very good about shorting at 3180, and I will add to my short at every technical supply level above it now too because we are back in a tight range bound trading market. LOok at the daily head and shoulder pattern formed now--a bearish continuation pattern if i ever saw one. Look back at the trading range between jan 26 through feb 6 when price first broke above 1.3. Consider what kind of data it took to break above 1.32 and 1.33 last time. The only people thinking this thing is going to keep going up much higher without a significant pullback are delusional hope-fiends and gamblers and perma bulls--IE dumb money and amateurs. When something happens in the news to warrant a strong continuation of a bull trend I'll be the first to seek an entry, but it's not happening this week.

What todays rally most likely was was a slight pricing in of renewed pessimism on interest rates in US staying low for a while and pricing in of the Greek bond payment on March 20th, but we are talking about a very slight pessimism based upon 1/10th of 1% off estimates with the core data. And the Greek thing is exhausted and thoroughly price din for the most part. Overall everything is still very bullish for the dollar and 10 year treasury yields continue to rise even though Fed keeps pledging low interest rates--a further sign that the market agrees about economic recovery.

Another chart worth pulling up is the 4 hour. You can see that this upward rally shadows/mirrors the 2 4 hour candles in this exact price range where price broke to the downside.

Got it master
When I was looking weekly charts and found shooting star then I started looking shooting start in the past and the candle which you mention I also noticed that candle but I thought the tail of the candle isnt bigger then the tail of the past week candle so its looking more lethal shooting star which may will result into USD bearish but when you said
90% I got your point but now 100%
Thanks a lot

http://www.goldmoney.com/gold-resear...gmrefcode=gata

http://www.goldmoney.com/images/thum...ng_plot_EU.pngGreece has now defaulted, and other eurozone governments as well as agencies such as the International Monetary Fund, European Central Bank and European Investment Bank have retrospectively inserted themselves as senior creditors, a precedent that should be of great concern and which has profound implications for private sector banks.

Furthermore, when a state defaults it is only a small part of the whole story, because governments today are major participants in their economies. The consequences of a central government default extend to state guarantees for other entities and related businesses: in the case of Greece its default has altered the assumptions behind all non-central government public-sector loans, such as railway bonds. And the private sector not directly dependent on government subsidies or contracts is also affected by the prospect of excessive taxes.

For this reason, the consequence of Greece’s default goes considerably beyond the loans directly involved, and all other eurozone nations are in a similar position. The headline numbers are a fraction of the total involved.
This brings us to a fundamental truth. Government debt is the basis for fiat money systems. This basis is now being questioned. It is the key component of the capital held by banks, as well as cash and deposits at central banks – both of which are also government creations ultimately backed by government debt. Ever since gold was legislated out of the monetary system, confidence has become totally dependent on the validity of government debt.

The insolvent position of a number of eurozone nations invalidates the general assumption that government paper provides a solid foundation for eurozone banks. That the stronger euro-countries can underwrite the weak is now also doubtful. The precedent that has been set by the retrospective interposition by governments and their agencies as senior creditors undermines the value of government debt even further for private-sector banks, who become junior creditors. It is not surprising that they have re-deposited the bulk of the money lent to them by the ECB with the ECB itself.

Euros held at the ECB only give refuge from exposure to specific government paper and is the best of a bad choice. Banks outside the region are exercising the option of opting out altogether.

It may seem unnecessary to question the very basis of the European financial system in this way. But this is bound to be debated in boardrooms across the entire banking network, inside and outside the euro area, and banks will react. It is also the underlying reason why the situation remains so precarious regarding Europe’s debt crisis. The way Greece’s default has been handled brings an increased risk of capital flight from the region at the worst possible time. Funding for all eurozone nations has become a lot more difficult. The ECB will come under growing pressure to not only rescue banks, whose balance sheets are imploding, but also to directly bailout governments as well.

Because of the systemic role of government debt, the crisis can be expected to spread rapidly from the insolvent weaker euro-nations to all the others. In short, the mishandling of Greece’s debt problems has made things worse.

Kno's Comments: The point being made here is that things have changed for the worse. Take note of the information and be aware of changes ahead of us and put this information on your bigger screen radar so when we get there you will have a more informed view of what is happening.

I wish everyone a good trading week and thank others here for placing great information on our thread this Sunday to prepare of the week ahead.

The post by Piptrapper containing other views on EUR/USD is brilliant. Thanks...

Thanks Phoenix Mgmt

From WWW.JSMINESET.COM

Jim,
Another one illustrating more truth than fiction.
To emphasize the enduring value of gold, I use this metaphor with my children and friends. Suppose you discovered an envelope jammed behind the drawer of a family heirloom. In it, your great Grandfather had placed $40 in the form of one $20 bill and one St. Gauden’s $20 gold coin. Which preserved its purchasing power?
CIGA Doug
http://www.jsmineset.com/wp-content/...001_thumb3.jpg

http://www.financialsense.com/contri...eady-to-tumble

Snippet:

Spain – Even Worse than Greece?

A few days ago, Sony Kapoor, managing director of the 'Re-define' think tank appeared on CNBC and pronounced Spain to be a 'worse case than Greece'.

Now,we're not sure if one can really go that far. After all, Spain at least sports a vibrant and fairly competitive export industry, although it is probably too small to matter in the current crisis. Still, it is interesting that there are quite a few people out there who do not think the LTRO inflation exercise has solved all problems in Europe.
This is in contrast to the official eurocrat line, which is of course that everything is copacetic again.

“Spain has very large downside risks and it needs to tread very carefully – Spain is in a very fragile situation. Its problems are significantly worse than Greece’s,” Sony Kapoor, managing director at international think tank Re-Define said.”
[…]

Wolfgang Schaeuble, German finance minister, speaking at the meeting dismissed any comparisons with Greece describing it as a “completely unique case” adding that Spain “had made great progress but we’re all still on a tough path.”

Ben May, European economist at Capital Economics, told CNBC.com that underlying issues in Spain could derail any attempts to curb the budget deficit.

“There are some reports that suggest that public debt might be higher than the official statistics show and there’s a concern that it might end up worryingly high over the next couple of years. The banking system is also fragile and the fact that there’s a housing overhang means we could see a situation like that in Ireland,” May told CNBC.com.

He added that talk of bailouts and defaults would then be ramped up but with far worse consequences than Greece.
“Spain is so much larger than Greece, so even if there is a small risk of a default or a bailout then it has much bigger implications for the euro zone than Greece had,” May added.

(emphasis added)
And that is actually the crucial point here: it is not so much the question whether Spain's situation is really 'worse than Greece's', which seems to be a slightly dubious proposition. It is the fact that a crisis in Spain matters a lot more to the future of the euro area than the crisis in Greece. The current consensus has it that 'Greece has been walled off', but consider how much angst and money this procedure has so far cost – and that is not even considering the fact that Greece may need yet another bailout or debt restructuring down the road.

The problem is that Spain is so much bigger – it is the quintessential 'too big to bail' case.

http://imagesize.financialsense.com/...6-mar-2012.jpg

5 year CDS on Portugal, Italy, and Spain. It is noteworthy that both Portugal's and Spain's have begun to trend higher once again. Spain is now once again considered a worse credit risk than Italy, which is as it should be.

http://imagesize.financialsense.com/...5-mar-2012.jpg

Spain's IBEX has been sitting out the recent rally in 'risk assets' across the world. It continues to be mired in a secular down trend - click for better resolution.

EUR/USD Long-Term tech/fund Analysis

Written by Phoenix Mgmt Mar 17 2012 21:23 GMT

The entire story of the EURUSD since the financial crisis began is written on the monthly chart. A break above the 12/11 monthly candle or a break below the 2/12 monthly candle have become the lines in the sand for 2012. I identify 2 bearish wave patterns in the monthly chart that I call here the short-wave and the long-wave cycles:

The long-wave cycle began in spring of 2008. It's a widely-oscillating downtrend that is presently in its 3rd bearish wave cycle. Projecting out a continuation of this cycle suggests that there is much further room for downside momentum in 2012; if the trend that began in 2008 extends throughout this year the Euro will close much lower than where it presently is. We will talk about how to identify when this trend has been broken or reversed shortly.

The short-wave cycle began in spring of 2011. It's currently in its 4th bearish wave cycle. The short-wave cycle is very precise and elegant in its formation--its behaved very reliably. In every single bullish correction of this downtrend, the tops of the bullish correction have always failed to break above the previous bearish months high. In fact, the highs of each bullish correction failed to break above the opening price of the last bearish candle that was formed. This is a very significant pattern/trend. There was a very slight divergence from this pattern in February where price broke slightly above the open (but not above the previous bearish candle's wick/top). I considered this divergence an anomoly however and I will explain why momentarily.

I noticed last year that the 3rd leg of the long-wave cycle was the first since the financial debt crisis and deleveraging began to experience several correctionary months. From 7/08 to 11/08 every candle closed lower in the first wave's down-leg. From 12/09 to 6/10 every candle again closed lower in the second wave's down-leg. However, in the third wave, heading into 2012, the bearish leg had experienced 2 monthly corrections already. This suggested to me that the Euro was finally starting to try to rally out of the long-wave cycle it has been stuck in since the financial crisis began. The 10/11 monthly correction was wider than the previous one too. This lead me to believe that price would begin to consolidate into a constricting range-bound market heading into 2012 which would determine whether or not the long-wave and short-wave cycles would resume or be broken in 2012.

My prediction was further confirmed when January and February closed two months of correction during the downward leg of the cycle for the first time since both wave-cycles began (the last two corrections had only lasted one month each).

I adapted my trading strategy this year to reflect that the channel we would be trading in would continue to constrict as the Euro is showing signs that it wants to break out of the four year trading cycle it has been stuck in.

Now it's time to explore what happened in February of 2012. When price first broke above 1.3444 I almost thought I had made a mistake as I was heavily short in the market at this point. 1.3444 was of course a key monthly fib-retracement area and it is the previous opening price of the 12/11 monthly price range. I considered several factors however. First I noticed that on the weekly time frame the top of the supply level didn't occur until 1.3485, so I decided that if this was a false break out that's where it would meet the most resistance. I also considered the final line in the sand to be 1.3548. The reason is because since April 2011 a correctionary phase of the short-wave cycle has never broken above the most recent bearish candle. I knew that 1.3548 would be defended as tenaciously by the bears as 1.296 is being defended by the bulls. I was off in where I predicted the top of the range would be, but not by much.

The reason I described the breakout above 1.3444 as an anomoly was because price doesn't exist in a technical vaccuum. Taken in the context of what was fundamentally happening at the time, it's obvious that a tremendous impetus must have driven price to these levels. Indeed, two things happened nearly simultaenously in the news in short order to spur this false break out. The 2nd Greek bailout, long, long awaited, finally came, and the sentiment amongst Euro buyers became one of slightly renewed although ephemeral confidence. Then the market began to price in the 2nd LTRO. Once I realized that this technical anomoly had only happened when two major fundamental forces converged at nearly identical points in time to drive it, I decided I was committed to defending 1.3485 and 1.3548 to the death. These prices ranges have the support of the Apr 2011 short-wave cycle and the spring 2008 long-wave cycle supporting them after all, and they also have a tremendous amount of fundamental analysis to support them which we will touch on later. The bottom line is that the short-wave cycle remained intact despite tremendous advantages the Euro was rallying off of in short order.

Technically, it's obvious the market remains poised to continue to test the southern border at 1.296. The short-wave and long-wave cycles are too pronounced to be broken without a serious struggle. Such a struggle cannot be said to have taken place in March and will likely not occur this month, since the month has traded on extremely low liquidity and nothing really major is left on the calendar. There is a sense of extreme caution and exhaustion in currencies (low liquidity) and equities (check the VIX) it seems. I continue to short this range with greater confidence because technicals and fundamentals both support further dollar gains in 2012.

The strategy for trading a tight range-bound market is to identify the tops and bottoms and then put yourself in front of the charging bulls and bears with wide stops knowing that the range is very well protected on both ends. Your bias should be toward the direction with a higher probability of breaking--for me this is bearish the Euro--although I continue to take long corrections within the range near 1.3 as long as no Euro-bearish news is nearby. This is how I have managed to do very well for myself in 2012, especially since I foresaw that the second Greek bailout and LTRO convergence would provide amazing long entries buying ahead of the news and amazing short entries selling the facts. This type of trading requires a degree of courage and confidence in your analysis and the ability to watch a charging market rush at you headlong which is always quite the rush. Due to my technical and fundamental bias, I am urging extreme caution to anybody going long the Euro near 1.3 around major news announcements or near future volatile events. Don't continue to hold a long in the event of a clear break below 1.2966 if you value your account.

Fundamentally there's a lot happening to support this technical outlook. I noticed that the EURUSD price action had begun to behave differently off NFP data which was my strongest indication that the correlations between currencies and equities were shifting again and that the risk-on paradigm that the Euro leeched onto and road like a parasite was shifting. When I shorted the last NFP release my suspicion was confirmed. One more rally of the dollar after positive NFP data will really put the stake in the heart of the Euro. Even negative NFP data can't seem to do much harm to the dollar at the moment since it suggests a risk-off atmosphere! Win-win? Perhaps. The Euro still benefits from risk appetite emerging out of positive US economic data I'm sure, but the US recovery favors the dollar even more presently because investors are looking to the dual likelihood of less QE and higher interest rates before 2014.

10 year US treasuries continue to rise despite the Fed's insistence rates must remain low, which is a signal the market agrees the economy is improving. If the yields reach and hold above the psych barrier of 2.4% before the EURUSD breaks below 1.296, I suspect it won't be long before this barrier is broken also.

Greece got its band-aid, but the contagion continues to spread. LTRO failed to relieve any pressure on Portugese 10 year yields. Investors are sending a clear signal to the EU bond market that their confidence in the southern periphery bond market is non-existent. The precedent of Greece using CACs to haircut its bond payments will leave a lasting sting on the global bond market for years if not decades to come. Fool me once, shame on you, fool me twice, shame on me. Spanish 10 year yields are beginning to rise above the 5% psych level again. The ECB further threw salt in the wound of the PSI when they deferred "higher priority" to themselves as European bondholders. The private sector will likely reward the ECB by not touching the southern bond market of the EU and letting the ECB do the dirty work of purchasing their debt.

A serious risk-event looms for Greece in April as well with elections set around the 22nd I believe. The possibility of a government averse to austerity implementation being elected seems very high if a person monitors the sentiment of the Greek people and not its government officials and their propaganda machines. French elections will also follow and be monitored closely. Spain already showed an unwillingness to adhere to the fiscal treaty, opening up the road for further dissent. The idea that one austerity fits all will continue to become more unpopular since austerity and growth can be counteractive forces.

The revised 4thQ GDP numbers for Greece also proved that on their economy's current course if a major improvement doesn't come like now-soon, their debt to GDP levels will require further bailouts. Most astute investors in the market understand that its a bogus ploy the economists are playing that try to predict growth and deficit spending outward until 2020 and beyond. I'll be watching their Q1 GDP numbers closely, and laughing when they reveal the utter horror that is the state of their economy (laughing only at the economists and their bunk forecasts while pitying the people who tolerate this outlandish scheme while profiting off the entire fiasco). Everyone seems content to breath a very temporary sigh of relief and let the EU play this game of buying time for now as most people sense they are simply jockying for time to minimize their exposure to Greece and make preparations before the poor little pawn known as Greece is forced to be maneuvered on the chessboard again.

I mentioned the equities markets and the VIX earlier, because the VIX is at historic lows again (it's only been this low two other times if I remember correctly). This usually heralds a correction in equities is imminent historically, and there's a lot of head-scratching on the street as to how much longer this rally can sustain itself at present. US equities are historically trading far above their trendline averages once again (something that usually happens before major corrections ala Great Depression, NASDAQ, and the debt crisis). A major correction in US equities will certainly not prove well for anything related to risk appetite. Most analysts agree at present that a correction would actually be healthy for the market at this point, and the longer it is in coming the more pronounced it will likely be.

There's some concern that QE is just around the corner in the US still, but with inflation being part of the dual-mandate of the Fed, investors shouldn't worry too much about QE talk this early in the year yet. In the words of one of the best bond analysts in the states, "...QE is out of the question until gas prices [inflation] stabilize."

Until some major sea-change occurs, probability and facts will continue to favor the dollar in the near-term most likely. Most analysts expect modest to moderate growth trends to continue presently. I don't suggest the US isn't without our share of problems: our debt to GDP and our deficit spending are horrendous and unsustainable indefinitely, but unlike Greece we are the reserve currency of the world with our own central banking system and the ability to distribute federal funds to member-states as needed. Our creditors will continue to support our currency for decades to come most likely because they have an interest in protecting their existing dollar reserves and because a failed US dollar would have an "unthinkable" outcome in many esteemed estimations, but come Jan 1 2013 America's deficit spending will no longer be something politicians can hide or ignore any longer it seems. But for now, that is still a much more distant problem then the challenges the EU will continue to face in 2012.

hi

Hi Duyk20, welcome to the thread!

Duyk20 is permanently banned from EurAnalysis due to past infractions. I mistakenly removed him from the banned list a while back and his "Hi" message was undoubtedly a test to see if he could start trolling again.
He's back on the list now.

http://www.financialsense.com/contri...-255-per-ounce

Snippet:

Given the extremely high correlation between balance sheets and the price of gold, it is possible to determine the implied price relative to current debt levels. In doing so, we calculate gold's "central bank balance sheet value" at around $1900 an ounce.

Gold has had quite the wild ride over the last nine months in which we've seen several triple-digit swings. It had a quick and sharp bear market last September with a 20% decline followed by an 18% snapback rally into November and then a 15.5% decline into the end of the year. Then, gold’s volatility carried over into 2012 as it rallied from December 2011’s low to a high at the end of January for a 17.6% positive swing. Lastly, we witnessed yet again another triple-digit swing when gold declined to the March 14th low of $1634.53/oz for nearly a 10% correction.

Right now, we have the second most oversold reading since 2008 and, as of yesterday’s low, gold appears to be selling at a discount of $255/oz to its average price. Thus, as I show below, gold investors are currently presented with yet another oversold and undervalued buying opportunity.
Second Most Oversold Reading In Four Years

Our firm has developed a technical indicator for gold based on several variables which we aggregate and then convert to corresponding z-scores (or standard deviations) to get a statistical reading of how overbought or oversold gold is relative to its historical performance. As shown in the figure below, gold is one standard deviation below its 12-year average (average taken over gold’s secular bull market) which is the second most oversold reading since 2008. Readings below -1.0 have often marked significant bottoms and the current reading should be seen only 15.9% of the time or, conversely, readings above -1.0 should occur 84.1% of the time.

Proof of gold serving as a hedge against currency debasement is well illustrated in the graph I present below, which plots reserves for the five biggest global central banks (in dollars) alongside. As you can see, the correlation between the two is unmistakable.

http://imagesize.financialsense.com/...-2009-2012.jpg
Source: Bloomberg

Running a regression analysis shows a 91% correlation between April 2009 to the present and the linear equation for the regression can be used to derive what the theoretical price (TP) for gold should be. Using the regression equation and the current value of the combined big 5 central bank reserves gives a current TP for gold of $1905/oz. Any time gold is above the regression line it can be seen as overvalued relative to its TP while values below the regression line indicate gold is undervalued. Gold’s price as of this morning is shown by the red box, which is clearly well below the linear regression line.

http://imagesize.financialsense.com/...ank-assets.jpg
Source: PFS Group

http://www.financialsense.com/sites/...6-mar-2012.jpg

Most data, both public and private, are seasonally adjusted. But the nature of the Great Recession seems to have had an unexpected impact on the statistical seasonal adjustment algorithms that are hard-wired to detect when the seasonal patterns evolve and change over the years. This is normally a good thing, but when the economy fell off a cliff in Q4/2008 and Q1/2009, it was partly interpreted by these procedures as a lasting change in seasonal patterns. So, according to these programs, data from Q4 and Q1 would be expected thereafter to be relatively weak, and therefore automatically adjusted upwards. Our due diligence on this subject indicates a widespread problem, resulting in many recent economic headlines being skewed to the upside.

However, we have no way to objectively measure the extent of these problems – either the upward bias for Q4 and Q1 or the downward bias for Q2 and Q3. Fortunately, year-over-year growth rates are naturally less susceptible to these seasonal issues because they involve comparisons to the same period a year earlier that is likely to be skewed the same way. In contrast, smoothed annualized growth rates, which we have traditionally preferred, presume proper seasonal adjustment. While the extent of the seasonal problem will be debated, monitoring year-over-year growth rates is a matter of simple prudence at this juncture not only for ECRI’s indexes but also for other economic data.

http://www.financialsense.com/contri...-is-inevitable

ECRI Explains Why Recession Is “Inevitable”



By Doug Short

Good evening all.
Thanks for the great posts regarding yoru views on Euro and Gold. Very informative.

Just a tought (red lines) - it fits nicely to the top of last friday and today (so far)
i have also an ascending wedge pattern (other scenario)
So litterally if it breaks 1.319 we go further up otherwise we're back down

I wouldn't be surprised if we go down to DPP (1.3138, which would be 38.2% correction of last move up) before further up.

In my humble opinion, We'll need some momentum to break 1.3185-1.319 or some big fundies

GL all

Whoops, didn't know. So it's "Bye" then

Get'em PT!

Nice H2!
Edit: suspect a Gap Filling @ down.