Wednesday February 17, 2010 - 15:11:19 GMT
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Black Swan Capital - www.blackswantrading.com
A euro bounce? That's a big maybe!
â€˘ U.K. jobless claims unexpectedly jumped in January to the highest level since Tony Blair led the ruling Labour Party to power almost 13 years ago. (Bloomberg)
â€˘ Bank of England policy makers unanimously agreed to pause their 200 billion-pound ($313 billion) bond-purchase plan this month on optimism that inflation will return to their 2 percent target.
â€˘ Hungary will miss its budget-gap goal this year because revenue falls short of estimates and spending exceeds the plan. (Bloomberg)
â€śThe European sovereign debt crisis may net to slower European growth from an already-tepid starting point. Although the European Council of government leaders has pledged "to take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole", that backstop is unlikely to immunize the euro-zone economies completely. The crisis likely will tighten financial conditions and promote fiscal austerity, consisting of increased taxes and lower public sector demand. And the crisis hits a still-tender euro area economy, which we have expected to advance just 1.2% in 2010. Incoming data showing that growth rose just 0.1% in 4Q09 and a poor start to 1Q10 underscore the downside risks.â€ť
FX Trading â€“ Euro bounce? That is a big maybe!
We are looking for a little rebound in the euro, despite our longer term view it goes to low 1.20â€™s this year at least.
â€śThe euro gained ground, helped by news the day of reckoning for Greece has been postponed until the middle of March,â€ť reported The Wall Street Journal today.
In other words, if you canâ€™t reach a decision or consensus, just cancel the meeting. During this interim delay you can bet Eurozone bigwigs will be putting the screws to Greece; the buzzword will be â€śausterity.â€ť
Austerity seems the only way to muddle-through. Germany has signaled they arenâ€™t jumping into this dangerous game of backstopping Greece debt, knowing it will only snowball. So, that option seems off the table. The big question is: Can Greece institute real reform? One month will tell.
German/Greek Bond spreads have eased a bit, but itâ€™s nothing to write home about: [Chart not available in text format.]
We know there are plenty more ticking time bombs the expose the European Monetary System (we notice Professor Mundell, the original theoretical architect of the Euro as a single currency, said Italy is the biggest problem for the euro. You can find his interview posted on Bloomberg.com)
Euro Futures Daily: Euro looking â€śoversoldâ€ť, trend is still down, but there are a lot of players along for the ride as open interest in the nearby futures is rising fast and at the highest level since June of 2008: [Chart not available in text format.]
A bounce, so that Mr. Market can shake out some euro bears, would not be a surprise. But keep in mind all thatâ€™s being considered equates to a rising potential of the breakup of the euro as a currency. That probability is likely low, still; but it overwhelms any technical analysis considerations.
Traders may want to apply; long-term investors hold your ground is our take.
Black Swan Capital LLC
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