UK & Europe Archives - Page 77 of 89

October 27, 2011

Forex: Euro and the Aussie dollar strengthen

The euro is testing resistance at the former support level of $1.40, in the hope that the bailout out-lined today will rescue the euro-zone from its debt crisis. We will probably read fairly disparate views over the next few weeks before the varying viewpoints synthesize into a clear market direction. Reversal below $1.365 would warn of a decline to $.20*, while narrow consolidation below the resistance level would suggest a breakout and advance to the 2011 highs.

EURUSD

* Target calculation: 1.30 – ( 1.40 – 1.30 ) = 1.20

The Pound similarly rallied to $1.60. Respect would re-test primary support at $1.53, while breakout would target $1.67.

GBPUSD

* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46

The dollar broke support at ¥76, continuing its long-term (mega) down-trend against the Yen. Target for the breakout is ¥72*.

USDJPY

* Target calculation: 76 – ( 80 – 76 ) = 72

The Aussie benefited from the weaker greenback, recovering above $1.04 to signal an attempt at $1.08*. Penetration of the descending trendline indicates that the down-trend is weakening.

AUDUSD

* Target calculation: 1.04 + ( 1.04 – 1.00 ) = 1.08

The Aussie and Loonie both closely follow commodity prices. Respect of the upper trend channel on the CRB Index would warn of another down-swing.
CRB Commodities Index
Canda’s Loonie is testing resistance at $1.00 against the greenback. Reversal below $0.975 would warn of another down-swing, while breakout above parity would target $1.02*.

CADUSD

* Target calculation: 1.00 + ( 1.00 – 0.98 ) = 1.02

The Aussie dollar completed a double bottom against its Kiwi counterpart (probably due to lost man-hours after celebrating their Rugby World Cup win). Expect a test of $1.32* followed by retracement to confirm support at $1.28.

AUDNZD

* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32

The South Africans went home early (from the RWC) and a descending triangle on the USDZAR warns of downward breakout to test support at $7.20.

USDZAR

* Target calculation: 7.80 – ( 8.40 – 7.80 ) = 7.20

October 27, 2011

Barclays Explains Why A 50% Greek Haircut “Would Be Considered A Credit Event, Consequently Triggering CDS Contracts” | ZeroHedge

Finally someone dares to go ahead and say what is on everyone’s mind, namely that proclaiming a 60% “haircut” as voluntary is about the dumbest thing to ever come out of ISDA. As is well known, the ECB and the entire Eurozone are terrified of what may happen should Greek CDS be activated, and “contagion waterfall” ensue. The fear is not so much on what happens with Greece, where daily CDS variation margin has long since been satisfied so the only catalyst from a cash flow market perspective would be a formality. Where it won’t be a formality, however, is for the ECB which has been avoiding reality, and which will have to remark its entire array of Greek bonds from par to 40 cents on the dollar, which as Alex Gloy indicated earlier, will render the central bank immediately insolvent all else equal.

via Barclays Explains Why A 50% Greek Haircut “Would Be Considered A Credit Event, Consequently Triggering CDS Contracts” | ZeroHedge.

October 27, 2011

Thank you Germany – Ambrose Evans-Pritchard

The unpleasant truth is that the EFSF leverage proposals are idiotic, the worst sort of financial engineering, legerdemain, and trickery.

As countless economists have pointed out, it concentrates risk. Germany’s €211bn commitment to the fund is not technically breached but the risk of suffering large and perhaps total loss is vastly increased. Creditor states switch from protected senior status on Greek, Portuguese, or Italian debt to the bottom rung on new slabs of sub-prime structured credit. The bluff might well be called.

The consequence will be to bring forward the downgrade of France and other states. It will accelerate contagion to the core, not stop it.

via Thank you Germany – Telegraph Blogs.

October 26, 2011

EU Forges Greek Bond Deal – WSJ.com

French President Nicolas Sarkozy said after the marathon negotiating session that the leaders had reached agreement with private banks on a “voluntary” 50% reduction of Greece’s debt in the hands of private investors.

He also said they had agreed to expand the firepower of the European Financial Stability Facility, the euro zone’s bailout vehicle, four- or five-fold—suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries such as Spain and Italy.

The leaders also agreed on a plan that would boost the capital buffers of the stragglers among the Continent’s 70 biggest banks by €106 billion—though they didn’t say where the money would come from.

via Euro-Zone Talks Hit Roadblocks – WSJ.com.

October 26, 2011

Euro-Zone Talks Hit Roadblocks – WSJ.com

BRUSSELS—Deep divisions between euro-zone governments and private banks over how much to cut Greece’s private debts threatened to undermine efforts by European leaders to agree to a broad package at a Brussels summit Wednesday night aimed at stemming the Continent’s intensifying debt crisis.

….Governments, led by Germany, have been seeking a real cut in the value of Greek government bonds held by private investors of as much as 60%. The banks, led in negotiations by Charles Dallara of the Institute of International Finance, a Washington-based international bank lobby group, offered a new proposal Tuesday night that officials said had fallen far short of that.

via Euro-Zone Talks Hit Roadblocks – WSJ.com.

October 26, 2011

German Lawmakers Set to Back EFSF – WSJ.com

Ms. Merkel, speaking in Germany’s lower house of parliament ahead of a vote on the European Financial Stability Facility, said Germany can’t prosper without Europe.

“We must solve the current crisis and correct mistakes from the past,” Ms. Merkel said, adding that she wants to push for sustainable decisions to be made at a summit of European Union government leaders later Wednesday in Brussels where leaders are expected to announce a package of measures to contain the sovereign-debt crisis.

A broad majority in the house is virtually certain to support a resolution backing a package of options to boost the firepower of the €440 billion ($611.91 billion) fund to more than €1 trillion without increasing contributing countries’ guarantees for the fund. All major parties approved the resolution in their parliamentary groups on Tuesday, making the resolution’s passing highly likely.

via German Lawmakers Set to Back EFSF – WSJ.com.

October 25, 2011

Iron ore crash – macrobusiness.com.au

Spot iron ore prices have shed 19 percent so far this month in a sell-off largely fueled by slower construction steel demand in China, the world’s biggest buyer of imported iron ore at around 400 million tonnes a year.

In Europe, a more important market for Vale than Rio, steel markets have taken a knock given uncertainty surrounding the region’s debt crisis.

Growth of Europe’s steel production will slow in 2012 along with activity in the steel-using sectors, Eurofer, the European steel producers association, has forecast.

via Iron ore crash – macrobusiness.com.au | macrobusiness.com.au.

October 25, 2011

S&P 500 and Europe encounter resistance

The S&P 500 pulled back from resistance at 1250 and is headed for a test of short-term support at 1200. Failure would test primary support at 1100, while breakout above 1250 would signal an advance to 1400*. Rising 21-day Twiggs Money Flow continues to indicate secondary buying pressure.

S&P 500 Index

* Target calculation: 1250 + ( 1250 – 1100 ) = 1400

Dow Jones Europe index also ran into resistance at 250, bearish divergence on 21-day Twiggs Money Flow warning of short-term selling pressure. Reversal below 230 would test primary support at 205/210, while breakout above 250 would signal an advance to 290*.

Dow Jones Europe Index

* Target calculation: 250 + ( 250 – 210 ) = 290

October 25, 2011

Euro Crisis Plan in Doubt

The 17 eurozone countries have not reached final agreement on the details of two key elements of the plan — reducing Greece’s massive debts and boosting the firepower of the bailout fund, two European officials said. They spoke on condition of anonymity because the talks were confidential.

Because of that, the 10 EU countries that do not use they euro won’t sign off on a plan to force banks across the continent to raise billion of euros in capital and insisted the meeting of finance ministers be called off, the officials said.

One of the officials said that the eurozone was also still waiting for Italy to take concrete action to control its debts and kick start growth.

“It’s a real mess once again,” the other official said.

via Euro Crisis Plan in Doubt.

October 25, 2011

Europe approaches zero hour

As I mentioned in an earlier post, there is bound to be a relief rally when EU leaders announce details of their rescue package — followed by a pull-back when traders figure out the costs. The danger is that Germany and France do an “Ireland” and rescue the banks but put themselves at risk. Both have public debt to GDP ratios close to 80 percent and it would not take much to push them into the danger zone. A down-grade would raise their cost of funding and place their own budgets under pressure. If they are down-graded then the kids are home alone — there will be no adults left in the room.

The FTSE 100 displays a decent bullish divergence on 13-week Twiggs Money Flow, warning of strong buying pressure. Breakout above 5600 would offer a target of 6000*, but expect retracement to test the new support level. Respect would confirm the advance.

FTSE 100 Index

* Target calculation: 5500 + ( 5500 – 5000 ) = 6000

Germany’s DAX is headed for 6500, but a weaker recovery on Twiggs Money Flow suggests this is a bear market rally. Respect of 6500 would indicate another test of 5000.

DAX Index

The French CAC-40 index displays secondary buying pressure. Respect of 3700 would signal another test of primary support at 2800.

CAC-40 Index

Madrid rallied to test resistance at 900. Again buying pressure on 13-week Twiggs Money Flow appears secondary. Respect of 900 would signal a decline to the 2009 low of 700. Breakout, however, would signal a rally to test the descending trendline.

Madrid General Index

Italy’s MIB index is testing the descending trendline near 16500. Respect would test the 2009 low at 12500. Breakout would offer a target of 19000*.

FTSE MIB Index

* Target calculation: 16 + ( 16 – 13 ) = 19