It’s crazy times all over again! Euro below US$ 1.30, and USD/SEK slowly getting acquainted with the new 7 handle. Gold is navigating back into the 1600 territory and is making concerted breaks with bullish trend lines. The opening was rather bombastic, and as horrible as it is to watch and think about: is this just the hook right before the crescendo?
Euro:
The big culprit appears to be the more-or-less failed bond auction of 5 year Italian BTP’s, but there has been a string of aggressive moves for the last 24 or so hours given rumors of further ratings downgrades and straight talk from Merkel. She seems intent to play comeuppance on the idea that central bankers should remove the punch bowl when the party gets going. Ancient saying, I know, both Greenspan and Bernanke haven’t been good friends of these thoughts. More to the point though, Merkel doesn’t wait for the party to get started, she seems intent on crashing it as the guests are standing around wondering when the music will even play. And she doesn’t remove the punch bowl, just spits in it and lets it sit there.
The recent rate adjustments from the ECB didn’t seem to support much either, and then to top it off incompetence has again been exposed in European politics with everyone discussing the insurance coverage of the ICU-patient and the projected life of someone with their medical history rather than what treatment to administer at the moment: where to cut the gangrene and where to inject medicine. It just seems Italy BTP’s gave a wall-soaking cough of blood to remind everyone that there are more important matters than insurance coverage. Like the fact that everyone in charge is tired with these discussions and will take some coffee before again discussing insurance policies.
Technically – Support lines:
We have quite some work cut out for us in this field. Immediately present is the treat of breaking the 2011 lows from January, more specifically the 1.2884 level from January 10th, which is chalkable to a 1.29 break. The intense work we had cut out for us in cleanly breaking 1.3300 and 1.3150 indicates a rather strong support if it bounces around the 1.30 level for a while, since a break from these levels should provide strength. Short reloading might be needed here to push further falls. Borderline believing a 1.3150 pullback would be in order for that, but it’s just a hunch and not backed up by any data I can mine.
The next matter of technical importance is the what-if-it-breaks-1.29 scenario. Long slog down to the next level of linear support: 1.26. Not much interesting happening in between, sadly, and it does therefore appear that 1.2884 is the bullish line of next defense, while 1.3150 is the newly claimed one for the bears. If asset repatriation back into Europe has been what kept it above 1.30 for the majority of the year, then maybe the strength of that effort is coming to a close, which in itself would be an incredibly bearish signal for nearly all risk assets.
Weekly candle support lines
Losses will be harder fought for the next few eurocents, as there are bottoms from the October 2008 to March 2009 period to contend with extending down to 1.24 with intermediate levels at 1.255 and 1.25. Maybe even more QE will spark a rally from here, who knows? If not, then the May 2010 debacle inverse Head-and-Shoulders neckline at 1.22 will be under serious consideration, and all bets will be off after 1.19 breaks on the weekly time frame. 1.19 is perhaps the most important key level as it’s the 2010 low, 1999 issue price, May 2003 high (significant rally), May 2004 low (significant fall) and 2005 low, never to be revisited until 2010. The next significant hold is at 1.0750 – which I will target upon 1.19 breaking – and after that it’s more or less irrelevant support levels back town to the all-time near-triple lows of 0.84 with a S/R line possible short reload pause at 0.9550 first.
All time support lines for the euro. 1.19!
Why am I even mentioning these levels? Besides the fundamentals, I mean.
Technicals – Momentum: Never seen anything so scary in the euro.
Ouch is all I can say to this.
We’re getting 52-week Bearish Bollinger Band surf. How’s that for alliteration? I define this as when the Bollinger Band on either side gets tagged, and price kind of surfs along not moving much in terms of standard deviation differences relative to the moving average. Thus, strong, sustained momentum moves as price continuously “surfs” the Bollinger Band to outrun the moving average. This is one of the stronger momentum signals in the 1-hr time frame and above, and provides ample opportunities to enter the biggest rallies on the daily frames.
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Previously a weekly candle EUR/USD BB-surf happened in bullish fashion in November 2006 which brought the shared currency from a high of 1.33 (Bandtag! first arrow, down) down to 1.30 (26 week EMA, next arrow, up) and then up to 1.60 by early 2008. The only bearish case for this recently was the 2010 sell-off, where the surf started on a barely moving Bollinger – the effect is stronger with stronger slope of the Band in your favored direction – which brought price from 1.3030 to 1.19 in less than 5 weeks, requiring Greece rescue 1 and a massive support line to save it. Now, the band is moving downwards slowly below price, but wait another 3 weeks, since that will start filtering out of the lows of early 2011 and literally bring the SMA crashing down (the second blue raff, using same methodology for both however to illustrate similarity between now and may 2010). The only way to make sure the SMA doesn’t fall is to initiate a bull run to the tune of hitting 1.50 before March ends… happened last year, but the bears are probably gonna have a few things to discuss with the bulls at the 1.40 level to illustrate how this time it’s different (meaning, it’s beyond Ieland, Portugal and Greece). Unless of course Bernanke goes print-crazy and Draghi doesn’t. Always a risk. Note: See how this last raff creates an even faster rally than the first! And starts from a lower point, meaning an incredible lift needs to be done in percentage terms to avoid a MA drawdown.
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Peripheral Watch – SEK:
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Added a 7-handle so far, shows signs of the same band surf on the dailies (not on the weeklies, reflecting slightly stronger price action over the longer frame) but this is essentially liquidity watch anyhow. the 7 level is a strong indicator however, as prices have remained significantly more volatile above it relative to below it in percentage terms save for the last few months. It is an indicator that things could start getting ugly from a bank balance sheet perspective (where Swedish banks are still big relative to the size of the economy) even though said banks are extremely well capitalized. Zerohedge gave Swedbank – possibly worst of the bunch – a relatively light roasting for the latest bank run rumors in Latvia. That said, the export economy will be the play to watch: can the Nordic country keep exporting high-quality goods primarily to China to maintain order flow and pump even a slight trickle of cash to the supply chain should things get ugly in continental Europe?
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The technical image is pretty much similar to the euro but small details favour the SEK. However, in these times with oil rising on the Iran geopolitical fears, the short-term play would be to favor the neighbouring country and do a long NOK/SEK as export outlooks drop on crisis fears and oil prices rise on Iran.
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Gold:
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Whoa… pushing into 1600? Totally disregarding the fibs or any other prior bottom resistances? The area it is in right now is pretty thick S/R wise, but there is nothing special that seems to stick. Dealers are talking about ultra-low paper volumes, and that might very well be the drivers for ignoring technical key levels. There is the question of how far the new pushing down can take it, and I am really doubtful that there will be anything conclusive out of gold for a while yet. If not enough bulls are participating in the markets to provide a proper bid, to at least allow stabilization and forcing the market to take supports into account, things could get very ugly very fast indeed.
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Below here, supports are weak except for the round numbers on even hundreds of US$ below 1533, and things will therefore look pretty hairy if a further fall is taken in. assuming a 30% drop from peak – normal commodity “corrections” – would put us into 1340, which is a fairly supportive area with the January 2011 consolidation bottom. Anything stronger however, would likely give 1200 a serious try for its money, if not then the 1000 level and possibly below 800, to go for true commodity bear market ranges and revisit 2008 lows. I put the probability of anything like this happening to be very low, and more of a mind-game scenario in case physical buying doesn’t give off enough support to stave off paper liquidation, and deflation mysteriously sets in.
[Note: corrected for adjusting horrible writing.]
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