Euro Rallies On Central Bank Intervention_Iron Ore

About_Us Contact Us

Info Data technology Sell Buy Report

Market

Report

Conference

2011 China DRI industry ...

Euro Rallies On Central Bank Intervention

作者：25 发布时间：2010-05-21 文字大小：【大】【中】【小】

Contributed by The Daily Reckoning

Front and center this morning, we have the euro’s rise yesterday, and gold’s awful performance… Let’s go to the euro’s rise first…

The euro (EUR) did a little magic act yesterday, defying gravity, by rising versus the dollar during the day, while every other currency not called US dollars, Japanese yen (JPY), or Chinese renminbi (CNY), was getting sold like funnel cakes at a state fair. Does this sound suspicious to you? It did to me… And I told Chris during the day, that it sure looked like European Central Bank (ECB) intervention…

The ECB looked at the price action of the euro after it was announced that the Germans didn’t want to get naked any longer… OOPS, I mean that the Germans were banning naked short-selling. The euro was falling fast, and then, turning on a dime, the single unit began to rise versus the dollar… And rise it did… Adding almost two cents to its price. And again, this was going on while the currencies and gold were spending the day in the woodshed!

This smells like intervention, walks like intervention, and talks like intervention… I don’t know it as a fact, but I’m sure it was intervention… The ECB said, “Whoa there, partner!” While we enjoy a “weaker” euro for our manufacturing and exports, we certainly don’t care for a “weak” euro, and so… In my opinion, the ECB stepped in and bought euros throughout the day.

Is this the end of the euro weakness, because the ECB intervened? Hardly… I’ve told you all for years and years, that Central Bank Intervention can only move a currency for a short-period of time… The markets have far deeper pockets than any central bank… It would take a “coordinated” bout of intervention to scare the markets… That would mean that the ECB would round up the Big Boys from the US and Japan, and all three would go into the markets to buy euros. That would scare the bejeebers out of the markets and the euro would then be out of the woods.

But, I don’t see that happening… This was simply a case of the ECB going alone to stop the slide in the euro, and to even out the move… I’ve also told you for years and years that central banks don’t like to see wild moves in their currencies. The ECB is not a collection of dolts… I do believe they see the writing on the wall, that the euro was to get sold because of the debt problems of the GIIPS (Greece, Italy, Ireland, Portugal, and Spain… I changed it to GIIPS from PIIGS because I thought these guys were giving pigs a bad name!). However, the ECB does not want the trading to become a one-way street.

So… The damage to the other currencies yesterday was something that I’ve not seen since the collapse of Lehman Bros. back in the fall of 2008. Get sold? No it was more like get “trashed.” The fundamentally strong to the weak sisters of the poor, the price action was down, down, and down… All day, all night…

And gold led the way… At one point in the day the shiny metal was down $35 on the day… OUCH! Here are my thoughts on this price movement in commodities and the commodity currencies.

This is all based on China… The analysts that claim to know what’s going on in China, all say that the Chinese economy is going to hit the wall, and fall flat on its face, much like a Road Runner cartoon, with Wile E. Coyote… So the thinking is this… If China sees its economy fall on its face, then their demand for commodities will too… And therefore the commodity currencies will suffer.

Look, I don’t know if that’s true, or not… All I can say is that I’ve seen this before, and each and every time, the “experts” were flat wrong! I recall one time years ago, probably 2003-ish, I was in Phoenix to give a speech/presentation, and picked up the USA Today, and right there on the front page in bold letters was the claim that China was going to slow down and commodities would be on the selling block… The price action in Aussie, Canada, New Zealand, and the other commodity currencies was very similar to yesterday’s price action.

The problem for that and many other claims to follow over the years was that it was wrong! And a few months down the road when it was confirmed that it was wrong, the commodities and commodity currencies would rebound… I was always amazed at the way no one went back and pointed fingers at the people who made those calls… But, things were moving in the right direction again, so who cared, I guess…

The commodity currencies are caught up in this Chinese vortex once again… And commodities? Getting trashed too… To me, I believe this all to be a trap… As I said, I’ve seen this many times in the past 10 years, and each time the experts have been wrong. Maybe they’re right this time… They still wouldn’t be hitting above the Mendoza line if it were baseball… I’m from Missouri; I’m going to have to be shown that China’s economy is going to fall on its face…

Well… As I turn on the screens this morning from my home here in my little river town, I see the euro has already given back 1-cent from yesterday’s 2-cent gain… That doesn’t bode well for the price action in currencies and commodities today, folks… I can’t say it enough… This all looks very familiar to me… Just like the price action after the collapse of Lehman Bros… It took six months for the fundamentals to return…

Gold has given up another $9 this morning too…

Pretty soon, US officials are going to feel their shirt collars tightening around their necks, and the sweat to begin rolling down their faces… You see, they can’t have the dollar getting strong! The need it to be weak, and a lot weaker than this to give them a chance to deal with their deficit spending!

Speaking of deficits… I was thinking last night that I’ve been blind to something that I should have seen a long time ago, since I talk about both of them all the time! The national debt in the US is nearing $13 trillion dollars… But… It’s really $19 trillion… Where did the $6 trillion come from? Ahhh, grasshopper, it even took me this long to figure this one out… You see… The debts of Fannie and Freddie total over $6 trillion… And since these two were nationalized, their debts are our debts now… And just because the government doesn’t count their debts with ours, from now on, I will.

How are we ever going to pay back $19 trillion? (Oh and that’s not counting the unfunded liabilities of Social Security, Medicare, and Medicaid) Higher taxes? That won’t work, folks… Government spending cuts? That would help, but going forward with all the baby boomers like me nearing retirement, the unfunded liabilities become “funded” and those alone will be more than tax receipts and spending cuts can cover!

There’s only one thing left… A cheaper dollar… I don’t think US government officials have forgotten this… And neither should you!

To recap… The euro was stronger by 2-cents yesterday on a day when most of the other currencies and commodities got trashed. This looked like ECB intervention to me… The commodity and commodity currencies sell off is all tied to thoughts of a Chinese economic meltdown… They’ve been wrong before…

Chuck Butler

for The Daily Reckoning

Euro Rallies on Central Bank Intervention originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

sourced from www.beforeitsnews.com