Greece will run out of money within weeks if it can’t end a standoff with the International Monetary Fund and the EU. In a last-ditch effort to overcome the impasse with its international lenders, Greece’s government said Sunday that it would impose a new property tax to cover a €2 billion shortfall in budget targets this year. Investors worry that if the dispute goes unresolved, Greece could suffer a messy default, with untold consequences for Europe’s banks.
French banks’ overall exposure to Greece is about €65 billion, according to the Bank of International Settlements.
Good time to buy gold
With Europe awash with stories of the imminent default of Greece, and German banks told to prepare for a 50% haircut on Greek bonds [Bloomberg], this would be a good time to buy gold. Any rupture in current bailout arrangements would cause a flight to safety, driving Treasury yields even lower and gold even higher. Breakout above $1900 would confirm a fresh advance, with a target of 2100*.
* Target calculation: 1900 + ( 1900 – 1700 ) = 2100
Added in response to question: Reversal below 1800 is unlikely but would warn that the ascending triangle formation has failed.
Europe on the Verge of a Political Breakdown – Barry Eichengreen – Project Syndicate
Europe doesn’t have months, much less years, to resolve its crisis. At this point, it has only days to avert the worst. It is critical that leaders distinguish what must be done now from what can be left for later.
The first urgent task is for Europe to bulletproof its banks. Doubts about their stability are at the center of the storm. It is no coincidence that bank stocks were hit hardest in the recent financial crash.
via Europe on the Verge of a Political Breakdown – Barry Eichengreen – Project Syndicate.
European stocks threaten breakout
DJ Europe Index ($E1DOW) reversed below 230, threatening another down-swing — with a target of 200. Twiggs Momentum oscillating below zero indicates a primary down-trend. Follow-through below 225 would confirm the bear signal.
* Target calculation: 230 – ( 270 – 230 ) = 190
Euro breaks support at $1.40
The euro broke support at $1.40 after a descending triangle lasting several months. Breakout was most likely precipitated by the resignation of Jurgen Stark from the ECB. Target for the breakout is $1.30*.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
ECB’s Top German Representative Resigns – WSJ.com
Germany’s top representative on the European Central Bank resigned in an apparent protest of the bank’s recent interventions in euro-zone debt markets…….Jürgen Stark is stepping down “for personal reasons,” the ECB said in a statement…… Mr. Stark, one of the ECB’s most outspoken anti-inflation “hawks,” had opposed the ECB’s decision last month to reactivate its government bond purchase program….
GBP tests support
The Pound is testing support at $1.60/$1.59 against the greenback, dragged down by rising calls for another round of quantitative easing to assist the flagging UK economy. Failure of support would signal a primary down-trend with a target of $1.53*.
* Target calculation: 1.60 – ( 1.67 – 1.60 ) = 1.53
Swiss Franc weakens on SNB action
The Swiss National Bank (SNB) threw a similar lifeline to Swiss exporters and tourist industry, pledging to support their currency at 1.20 Swiss Francs against the euro with “utmost determination” and to “buy foreign currency in unlimited quantities” to achieve this. [Bloomberg]
The euro jumped from 1.10 to 1.20 CHF on Tuesday and has been trading in a narrow range between 1.20 and 1.21 since then. Further speculation is inadvisable unless you have deep enough pockets to take on the SNB.
Euro tests support
Germany’s high court threw Chancellor Merkel a lifeline, ruling that bailouts of struggling euro-countries are legal in terms of the German constitution. But they also created an obstacle to further assistance, requiring that parliament vote on any future bailout decisions. [WSJ]
The euro continues to test support at $1.40 against the greenback. Failure would signal a primary down-trend with a target of $1.30*.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
Europe consolidates
Dow Jones Europe Index ($E1DOW) recovered above 230 and is expected to consolidate between 230 and 250. The bear market remains strong, with 13-week Twiggs Money Flow below zero indicating selling pressure. Reversal below 230 would test the 2010 low of 205, though the calculated target is lower*.
* Target calculation: 230 – ( 265 – 230 ) = 195