Partner Center Find a Broker

Stop and catch your breath; maybe even enjoy a croissant.

JR here … when I read over Jack’s line yesterday about “wine-sipping and croissant eating” it made me wonder if I am, in fact, a “big-government socialist.” It also made me think of McDonald’s disgustingly delicious bacon, egg and cheese croissant-wich.

It also elicited a few good responses from our readers. Here is one:

“I was disappointed to see the reference to “croissant-eating big government socialists.” Surely, you are aware of the Siege of Vienna in 1683, when the Ottoman Turks failed to defeat the Austrians. In celebration, Austrian bakers invented the croissant. Thus, how can you belittle a food that has such a good origin.

“Otherwise, your analysis was spot on.”

Ah, those were the days … when Germany would put its support behind its neighbors in Austria. Times have changed. Now German support, despite the official economic and monetary union, comes via the IMF and EU. But we won’t get into that again – Jack nailed it yesterday.

Traders are taking a breather, perhaps enjoying a croissant, and the euro has bounced sharply today. Overhead resistance at the 72-hour moving average is in play, and is slowing the euro’s climb.

EURUSD Hourly:

A selling opportunity? Quite possibly. Look at what’s transpired today in the headlines (it’s not good news, so today’s jump seems more like a technical correction – a much needed break in the onslaught of selling):

S&P says may downgrade Portugal in 3 months (Reuters)
Italy no longer quite so safe in euro debt crisis (Reuters)
Trichet hints at bond purchase rethink (Financial Times)
The Disastrous Consequences of a Return to the Deutsche Mark (Spiegel)
Eurozone unemployment edges higher (Financial Times)

This from another reader of ours yesterday:

“The employment charts made me laugh.”

But then again, Portugal’s Prime Minister may have calmed FX traders’ nerves by saying suggesting there is no pressure or need for Portugal to seek a bailout.

Though that may not really mean much — here is a priceless piece from Michael Pettis’ latest article:

Its official – Spain and Portugal will need to be bailed out soon. How do I know? In one of my favorite TV shows, Yes Minister, the all-knowing civil servant Sir Humphrey explains to cabinet minister Jim Hacker that you can never be certain that something will happen until the government denies it.

So check out this article in Tuesday’s Financial Times:

Spanish and Portuguese leaders, with reinforcements from Brussels, are fighting a rearguard action to convince investors that there is no need for further eurozone bail-outs after the €80bn-€90bn ($109bn-$122bn) rescue agreed for Ireland at the weekend.

“Absolutely not,” said Elena Salgado, Spanish finance minister, when asked in a radio interview on Monday whether Spain needed help from the European Union. “Spain is doing everything it has promised to do, with tangible results.”

Portugal is regarded by bond market investors and economists as next in line for a rescue after the bail-outs of Greece and Ireland. But José Sócrates, Portuguese prime minister, was adamant that there was “no connection” between the Irish rescue and Portugal’s problems. “Portugal doesn’t need anyone’s help and will solve its own problems,” he said, insisting that the country had a clear strategy to cut its yawning budget deficit.

Was Sir Humphrey exaggerating? Perhaps, but I do remember that Dublin was pretty adamant just a week or so ago that there would be no restructuring of Irish debt.

It doesn’t make sense to believe official commentary can alone stem the eurozone-inspired risk aversion in the markets. But that doesn’t mean the market can’t find some corrective footing here. After all, the headlines are saturated with commentary of an implosion of the eurozone, the falling value of the euro, Ireland, Portugal, Spain, Germany, etc.

Let’s broaden our view to a daily chart – EURUSD Daily:

There are a couple things going on here suggesting a lasting, long-term move lower:

1) The 200-day moving average (purple) has been penetrated.
2) The slope of the 50-day moving average (orange) is turning negative.

And there are a couple things going on here suggesting a quick, near-term correction is due:

1) The drop beginning on November 22 now makes up 100% of the prior drop (Nov 5 – Nov 17).
2) The price has outpaced the 22-day and 50-day moving averages, suggesting that gap may need to close (correction or consolidation) before further downside commences, as similarly seen in the two-month period of December 2009 and January 2010 …

EURUSD Daily (Dec 2009 – Jan 2010):