When traders get really good and bearish, how often does a market then turn around? I have often felt that it is the markets function to fool as many people as possible. After all, if it were easy everyone would be a trader.
The Euro versus the USD, aside from a few minor rallies, has been in an orderly decline since the tweezer top October 17th and 18th. Then, after lower markets earlier in the week, we get a turnaround on Wednesday, taking us higher for the week.
Fear of a potential Greek sovereign debt default seems to have been the catalyst for the most recent sell off, however, the Greek’s sold €4B bills yesterday. It was reported in the Telegraph:
….(the) “successful bond auction cheered traders, despite warnings that Greece may have to hold another emergency auction to raise the final €1bn needed to redeem the €5bn bond due on Friday. Greece’s finance minister, Yannis Stournaras, admitted there was still a “very high” risk of default, even if Athens meets its obligations this week.”
Since most of the bail out money that goes to the Greeks is really a rollover of maturing debt we have to assume the money will show. The Greek bailout is mostly a debt refinance scheme. Bankers, like lawyers, seem to protect their own.
Debt holders and financial people may be applauding the latest rescue from the abyss, but there are demonstrations taking place in Spain, Portugal, Greece and Italy today. These protests have been organized by labor unions across Europe to protest austerity measures. There have been flight cancellations, 600 in Spain, and 160 in Portugal, and smaller union demonstrations in France, Belgium and Poland.
The red numbers in the global equity markets are expanding. Should this continue, it is hard to see the bounce in the euro getting very far but an equity turnaround might send the euro higher.
News from the US has not been constructive this week. Today, the retail sales number was a drop of 0.3%, explained in part by the disruption caused by the storm Sandy. The core US PPI (Y/Y) was up less than expected at +2.1. Lower energy costs were given as the reason. Late yesterday, the US Monthly Budget Statement for the first month of the fiscal year reported a bloated deficit of $120B. Spending was up 16.4% from the previous year.
We know the European market has been slumping, but that may be priced in the market. Remember, too, the specs are big euro shorts. If it looks like we are headed for a higher weekly close, they may want to take money off the table. My inclination is to be close to even in this pair. A return to the 1.2850 level would tempt me to again be a seller.
Written by CashBackForex.com