Archive - May 5, 2011

In line with expectations. The conference following the announcement is where everyone will be, expecting to hear if the ECB will tighten imminently, or, far more likely, not.

Quiet day in the US where just jobless claims will provide the last jobs datapoint before tomorrow's NFP. Attention will be focused on Europe where if not today, then very soon, Trichet will admit his mea culpa for hiking rates prematurely, now that the German economy is taking a big turn for the worse.

A look at the year to date SS numbers. A guess on the NFP due out on Friday

Following a near record surge in February, March German manufacturing orders plunged far lower than consensus, dropping -4.0% on expectations of a 0.4% rise, as a decline in investment goods limited growth in Europe's largest economy, the economy ministry said Thursday. "The participation of large orders was strongly below average," the ministry said in a statement. This eliminates any possibility of an ECB rate hike later today (to be followed closely by Zero Hedge), and validates our assumption that the ECB rate hike regime was flawed, and not only will Trichet not do anything today, but will be forced to return to a dovish stance within a few months, leading to a reversal of recent tightening and to a validation of Goldman's warning on the EURUSD which has at this point very likely topped out.

Goldman, which some time ago posited a 1.50 target in the EURUSD, is starting to get rather nervous about its recommendation: "We expect the dollar depreciation trend to extend in the twelve months ahead. In the near term, however, recent cross-asset correlations could mean that equity market softness would translate to dollar strength. This could especially be the case in the event that markets start to perceive the recent slowdown in data as deeper and more global in nature. This is not our expectation at the moment. However, given that we are less than 1% away from what was initially considered an ambitious target of 1.50 in our long EUR/$ recommendation, any incremental increase market volatility could significantly tilt the overall risk/reward of the trade. Hence we are watching relevant developments across risky assets closely." In other words, now that the intertim silver "bubble" has popped, the EURUSD may be next to follow, since the key requirement for a market drop, and further monetary easing greenlighting, is unexpected, and not priced in, dollar strength. Based on this Goldman piece, it may be coming very soon.

As the days go by, we are getting the feel that this is becoming more than a normal correction for silver. It looks like the first phase of the secular bull has been completed! So what's next for the white metal?

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