Euro

With the world in the throes of an unprecedented credit blowout, gold’s failure to crack $2000 barrier can sometimes seem mystifying – the moreso as the correction begun in 2011 stretches on, now into an eighth month. Gold has acted more like wheat or corn than like money. Shouldn’t it reflect the fact that dollars, euros and yen are available to an insatiable group of borrowers, mainly large banks, at no cost and in practically unlimited quantities? Indeed. And yet, lately, gold has been unable to muster the ire, even, of crude oil, which appears to be gathering thrust for its first foray above $120 since 2008.  Meanwhile, Comex Gold has been lazily backing and filling since last September. If gold is not oblivious to the steady and relentless destruction of currencies, it seems unpersuaded that this is what the central banks are accomplishing by design. From a purely technical standpoint, gold’s reluctance to get in gear with crude, and to start acting like it knows what the central banks are up to, is not so mysterious. Let me explain.  I have written here many times that it is not bullish buying that drives stocks relentlessly higher in bull markets, but short-covering by bears. This was a dynamic I got to observe first-hand in the dozen or so years I spent on the trading floor of the Pacific Exchange. While bulls often rationalize their buying strategies by citing “fundamentals,” they probably understand at a gut level that PE ratios are no more useful a predictor of where a stock will be trading in six months than tea leaves. Small wonder, then, that bullish sentiment alone cannot summon the kind of torpedoes-be-damned buying it takes to drive shares through massive levels of supply.  But short-covering can, since the buying is rooted

Europe’s bankers will need to think really big the next time they try to construct a proper “mother of all firewalls.” A nearly trillion-euro package that was on the table a few weeks ago would combine €440 billion of uncommitted funds from an existing credit “facility” with  €500 billion pledged toward a new one. Those may sound like big numbers, but they evidently were not big enough to prevent market forces from roiling Europe’s stage-managed bond markets last week. The result was a surge in yields on Spanish debt  that spooked U.S. stocks, among others,  into their worst weekly decline of 2012. Although the world’s bourses had celebrated in the weeks leading up to and immediately after the February bailout of Greece by central banking’s wizards and alchemists, stocks have been falling steadily since the beginning of April. Clearly, the specious extravagance of a trillion-eurofund doesn’t buy much peace of mind in financial circles these days. That's notwithstanding the obvious fact that the countries charged with funding the "facility" would have to pony up only a small fraction of the marquee sum. As much should be clear to all the players, since even the ostensibly solvent likes of Germany, Holland and Finland don’t have that much good money to throw after bad, nor the will to import austerity by-the-empty-truckload in support of a doomed euro and a bunch of sovereign deadbeats. Private Lenders Flee Spain For their part, U.S. stocks looked dismal last week, with the Dow off 1.6% and the S&Ps down 2%.   However, such relatively mild selling may prove to be just a warning tremor if Europe’s debt crisis is about to return to the headlines.  On Friday, investors’ fears ratcheted into the red zone when it became apparent that a tidal surge of borrowing from the European

Weakness Sunday night has brought the futures down to a so far low of 1.3013, exceeding a key midpoint support at 1.3043 that I view as more important than the obvious structural support of lows made, respectively, on  March 15 (1.3009) and February 16 (1.2987).  The clear implication is that the euro is bound lower, presumably to the 1.2868 target shown.

The 2012 high in the March Euro futures of 1.3325 happens to be the exact midpoint of a prominent pattern, and a move above that level will project up to the "D" target of 1.3672.  In the early hours of Tuesday the futures have confirmed and then broken a smaller pattern whose impulse wave took out an important external prior high.  Traders should watch for a new "C" point to be confirmed and then calculate the pivot levels and assess the implications.  If the euro continues to decline, however, and especially if it makes new session lows, it will begin to look as if Monday evening's strong move up was perhaps a last shot at the key 1.3325 level.   (Posted by Doug "harry" McLagan)

Americans can take comfort in the likelihood that the showdown between mortgage lenders and homeowners will not resemble Greece’s battle-to-the-death with its creditors. In the U.S., the banks are slowly losing ground to a populist, election-year tide that eventually will force lenders to accept a moratorium on mortgage debt for tens of millions of homeowners. In the rapidly escalating legal battle to bring this about, last week’s $25 billion settlement between the banks and the U.S. did not settle much of anything, since the banks in theory can still be sued into oblivion by aggrieved homeowners. The plaintiffs will be claiming in effect and with a straight face that they got in over their heads because lenders forced them to borrow more than they could repay. Who would have imagined just a decade ago that an army of reckless borrowers would seek the protection of the courts under the remorseless deadbeat’s battle flag “Kick me, beat me, make me write bad checks”?  That’s what it’s come down to, evidently, and woe to any bank that asks the court for help in turning a family out onto the street. The five big banks that signed onto the deal are undoubtedly running scared, since the legal latitude afforded those who could conceivably claim “questionable lending practices” has been widened to include just about anyone who lives in a home – including, presumably, tens of millions more homeowners who  are not yet underwater but eventually will be. Keep in mind that the costs of the yet-to-be-unveiled Homeowner Bailout Act of 2014 have already been socialized, since the GSEs have been originating 90% of all new mortgage loans. Contrast this with the increasingly dire situation in Greece, where lenders, backed by a docile and ignorant press, are still able to pretend that they have

The euro's daily chart looks more bullish than the dollar's at the moment, implying that Greece's latest resuscitation will pass muster where it matters most -- i.e., in the make-believe world of global finance. Even so, the futures can't afford to stall for more than a few days lest they lose the considerable momentum that will be needed to surmount the 1.3296 'external' peak recorded on December 8.  That's what it will take to refresh the bullish impulsiveness of the daily chart and to sustain the illusion that Europe is somehow muddling through its debt crisis. Click here for details concerning the upcoming Hidden Pivot Webinar, where you can learn to do this stuff yourself.

The euro's chart looks more bullish than the U.S. dollar's at the moment, suggesting that the latest deal to keep Greece afloat has passed muster with the global banking establishment.  Index futures are up as well, but only by enough -- six points -- to imply DaBoyz are more interested in distributing stocks than buying them tonight. See you in the morning!

We shouldn't let our personal reaction to all of the lies and folly emanating from Europe color our outlook for the euro. What matters most, at least for the moment, is perceptions of the bailout, notwithstanding the fact that everyone "knows" there is not a chance in a hundred that it will work. From a purely technical standpoint, the euro signaled blithe acceptance of whatever deal is forthcoming on Greece when it impulsed bullishly  above a 1.3224 peak  on Monday. The subsequent correction was vicious, but it left a target at 1.3331 that lies well above these levels.  The relevant rally pattern is shown in the accompanying chart, and it'll be a lock if and when the futures push decisively above the 1.3179 midpoint resistance.  Click here to learn how to do this kind of analysis competently yourself.  Isn't it time you kissed your guru goodbye?

Sometimes it's impossible to tell whether the financiers and politicians who carry water for the central banks are bad liars or just clueless dolts. A bureaucrat from the U.K. surfaced in the Wall Street Journal over the weekend, exhaling what seemed to us an ostentatious sigh of relief over the supposed success of the European Central Bank’s latest loan program: “[It provides] a very significant degree of breathing space to banks.” Yeah, sure. A very significant degree --- as though the banking system’s terminally decaying colossus were not in danger of imploding tomorrow -- and for no greater reason, possibly, than that some hapless bank clerk erroneously misplaced a decimal point. The bureaucrat's remark appeared, with unintended irony, in a story about how European banks are in a quandary over how to redeploy a torrent of digital cash that has recently come their way from the ECB’s magical credit-infindibulator. Recall that the banks sucked up €489 billion ($641 billion) in a matter of weeks after the ECB made that sum available to them in December for three years on super-easy terms. But what to do with it all?  None of them are in the mood to lend to – heaven forbid! --  businesses, and that leaves only two bad alternatives: using the digital money to buy government bonds from the sordid likes of Greece, Italy and Spain; or hoarding it at a loss. A loss?  Well, it turns out that although the ECB is charging commercial banks a nominal rate of 1% to borrow as much as their greedy little hearts desire, the central bank is paying them only 0.25% on overnight deposits.  Call us cynical, but we can’t see how the growing asymmetry of this relationship will produce a solution to Europe’s debt problems. In fact, it reminds us