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EUR/USD, GBP/USD Forex Commentary March 14, 2012

At this point it sure looks like we may be getting back to some normal market conditions rather than the markets running on risk. With the Dow finally closing above 13000 it sure looks like we may be getting back to market movements based on economics which would be nice for a change.

The Federal Reserve did mention inflation enough to hint that QE3 wont be anytime soon and yet the equities still rallied so the pricing in of another round of money printing may not have been the case. I do still think the rally in stocks could be a sucker move to try and lure investors back into the market. Remember stock trading volumes are still at decade lows showing that this rally has been perpetuated mainly by the big boys using free money from the Fed. To be honest I hope I am wrong and the US can pull its way out of this mess and it is possible but there are some definite head winds ahead.

The European Project

In the European Finance Minister meeting yesterday things seemed to go as planned but we did get a few Bizzaro statements. Just not as many as I thought we would get. The German finance minister said that “the probability that the crisis is behind us is about 50%”. Well I guess we could toss a coin on that one.

I do find it hard to believe that the crisis is even 25% over considering we are seeing the same thing that caused the crisis still being perpetuated. For example Germany not following its own rules of adhering to its own budget cuts.

 SPIEGEL reports this week that the German government didn’t reach even half of its planned savings in the federal budget. Only 42 percent of the spending cuts named by Merkel’s coalition government, comprised of the conservative Christian Democrats and the business-friendly Free Democratic Party, were actually not implemented.

Calculations made by the influential Cologne Institute for Economic Research indicate that only €4.7 billion ($6.16 billion) of the €11.2 billion in austerity measures stipulated by the savings package actually took shape in 2011.

The government is also falling behind on its targets for this year. Of the originally planned €19.1 billion in savings, less than half has been implemented. For the coming year, the concrete measures that have been agreed on so far cover just one-third of the announced amount of savings. Merkel’s cabinet is hoping to agree to the basic foundations of the 2013 federal budget in March.

On top of that here is an interesting picture that shows the tactics used in the Finance Minister meeting . This is is from the Telegraph on how Spain sort of jacked the meeting as the ministers conceded to relaxing the budget deficit target for Spain this year.

The Telegraph reports, Moments before, the eurogroup had approved the €130bn (£108bn) bailout package for Greece. After five months of wrangling – and just a week before Greece was due to default – the deal should have been a cause for some celebratory plate-smashing at least.

But behind the scenes, Spain had hijacked the meeting. In a tersely-worded statement, the eurogroup announced they had agreed to relax Spain’s deficit target for 2012 – from 4.4pc set by Brussels last year to 5.3pc.

Spain had won some unscheduled breathing space. But what really angered Juncker was that in winning the concession, Madrid had stirred a radical retaliation of “sinner states” against the northern pusche for austerity and central control.

So nobody has to follow the rules but Greece the way it looks. Or maybe just maybe these guys could be pulling their heads out of you know where enough to start seeing some light. Who knows? I guess time will tell. A major concern should be growth along with budget cutting because without growth the debts just pile up anyway.

Looking at the charts things did not go as planned yesterday so its time to regroup. This will happen so no worries and the markets are going through the transition of risk based to more of the normal (who’s going where with interest rates) I just hope it holds this time.

The EUR/USD hourly chart is now getting a bit clearer with 2 levels of drop over the last 3 days and if we can close below the small intraday bottoming formation it should have a 3rd level down today. The GBP/USD is less clear and has seen 3 levels down and the reversal yesterday. I will be leaving this pair alone today until it clears up and shows a clean consolidation period. Considering the EUR/GBP we had the big drop yesterday and I somewhat expect a retracement but it has not quite formed a bottom formation so it could still go down after an accumulation period. I wont be trading it today since the chances are 50-50 and I like better odds than that.

Happy Trading


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