Monday, June 27, 2011

This Summer's Market

So far my recent calls are in line.  The DXY call is especially right.  It has tested DXY 76 today, as well as last week, but failed to breach it.  PMs have gone a little further south than I thought, but I called the pullback none the less.  Oil is also skimming the lows.

The EUR/USD trade remains volatile.  I still believe that for the next month or so will see the trading range stay EUR/USD $1.40-$1.45 before any major turn.  I think a European default is as likely as a US default, and this will impact the currencie dramatically, but not the way people might imagine.  If rates continue to rise in Europe, the Euro may continue to rise.  If rates rose in the US, the dollar may see support.  The reason is people will go to cash while rates rise because no one wants to buy bonds while they rise.  At the same time, the biggest winner will be PMs, as they are the default world reserve.

Equity wll remain volatile over the said time period of the next few months.  Support is at Dow 11,900.  Support needs to stay there or above to support the global pension system.  If the pension system fails, it all fails, and old people everywhere will be without income.


  1. Do you see a 1.45 cap on EUR/USD even if the Greek traitors in government vote for the bank bailout tomorrow?

  2. Good question: What happens if Greece accepts austerity and a massive future debt burden at the same time?

    It looks like due to the French/German "restructuring", the debt will be paid up front to the banks that issued the loans (Frnech/German banks). So this "bailout" is not likely to help Greece in the long run. It is a short term fix for the Major European banks.

    The "bailout" will give the European banks a minute to move assets around their book. One thing they must buy is European Bonds, as it would be foolish to take the money and run right away. It is not a bad deal, because the bonds are cheap, and the yiled is far greater than those across the Atlantic.

    The likely hood of Euro bond strength is great, which means that the Euro will likely weaken. The range is likely to break, and EUR/USD is likely to test $1.38. I think that it will take a few weeks to get there. By that time, DXY should be slightly above 76.

    Currencie trades will remain volatile, so it will not be a quick move to $1.38, but likely choppy, which is why I think it will take a few weeks. I think gold will move with the Euro, but silver and oil will remain at the bottom of their ranges, as will US equity.

    Yet oil and silver are on a bull run, and they will over take this move even in the face of a European bailout. This will lead to DXY weakness, which will reverse the downward trend in the Dow (since the lesser value of the dollar will make equity more expensive).

    Yet this does not address the US default siuation, and the Treasurie needs to issue massive debt to stay out of the red. The US debt ceiling will be raised, and QE 3 will be issued to accomplish the feat, as the Treasurie acts in cordination with the Federal Reserve, and the liability of debt must be paid off in dollars.

    Since oil trades inversely to the dollar, there will be a two fold move in oil's favor, because of the bull move in real assets, and because of the issuance of new debt/credit. This will have the Euro strengthen as well, even though it will stay minute, sense it will have gone through a period of weakness.

    I think that EUR/USD will be at $1.38 around July 29th, at which point the trend will begin to reverse. Bernanke will announce QE 3 around August 11th, and this will quicken thhe move.

    Gold will move back to the high of its near term range ($1550) through this first leg of Euro weakness, but will move to $1650 soon after QE 3 is announced (by September). Silver will remain under $36 until late July, but on Dollar weakness it will move quickly to $50. Oil will move with silver, and will test $120 wyhen silver is at $50.