Hopium Floats: The Draghi Effect

Burkhardt's picture

The market was shaken overnight as the head of the European Central Bank, Mario Draghi, stated that the “ECB is willing to do whatever it takes to preserve the Euro”.  This opens up possible monetary relief to larger EU countries such as Spain and Italy to alleviate financial woes.

The news snapped a 5-day decline of the Euro against the U.S. Dollar and the Yen on the expectation that the EU will boost their rescue fund.  The Euro made significant gains against the dollar climbing just above $1.23 this morning.

The immediate question traders should be asking is one of sustainability. Can this rally hold allowing for a new trend to emerge? Or is this just déjà vu of 2011 when the constant stream of statements helped push the market back a few feet from the cliff? A few statements does not equate to a recovery.

The Effect of “Hopium”

 The 200 Pip move was purely based on speculation or a hope that Draghi’s statement would render the same affect as the Calvary riding in to save the day. That’s just not how these things work.  Draghi will have to put his money where his mouth is in order to see a move like this sustain itself in the long-term.

Today’s upswing was indeed significant but has not broken the trend lines indicating that a new trend is emerging. I am not saying that this is impossible, just that it is unlikely.

My humble projection for the EURUSD is that the move towards parity is not yet over.

Your Currency Analyst,

Justin Burkhardt


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macdec35's picture

I will confess that I don't understand the entire mess these folks have and are creating, but I do understand that the fact is that if they say something it is likly a lie.

alien-IQ's picture

woke up this morning and saw that move had taken place between 6-7 am. Waited for a pullback...and waited and waited and waited. Ended up sitting on my hands and didn't trade at all today. E/U just flat-lined after that pop.

I'm looking forward to going short the EUR/USD again. It's been a nice ride down...and it ain't over by a long shot.

BeetleBailey's picture

I hear you alien...loud and clear.

I was happily shorting the Euro when this POS opened his maw.....went from profit to loss in seconds.....

I too, didn't trade at all today......and this is my business - which is 2012 is awful.

What I really "love" are these online FX sites - with these "traders" switching opinions and "right side of the chart" advisories.

Yesterday it was all "USD STRENGTH" - now after Mario Douchie - it's all the other way. This has happened numerous times now, and they justify it by using fucked up Fibos and hedging/couching headlines such as

"EURO BREAKOUT IMMINENT" - which way? They don't say.....up or down....then after today, it is all "as we told you..."


bluemaster's picture

Looks like only I am left trading and couple central banks against me. 

FinalCollapse's picture

You are playing roullette and the house controls where the spinning ball will stop. Good luck. 

Coldfire's picture

Draghi’s statement would render the same affect as the Calvary riding in to save the day.

It's Cavalry, as in special gloves and handlebar mustaches. Calvary is where Christ was crucified. Wait a minute...


ebworthen's picture

And when Merkel doesn't agree and it becomes obvious that the ECB doesn't have 5% of the funds needed to save the Euro - reality will return and the Hopium bubble full of the flatulence of EU politicians will pop.

falak pema's picture

Its much more subtle than that :

Merkel is using eleventh hour tactics to soften the resistance in club med to install a federation that suits her. She knows that she has to tow the line in the end : capitulate to Draghi and "pseudo Eurobonding", via ESM, and use back door bonding to bring down the sovereign yield; all the while making the club med reinforce austerity and relinquish sovereignty so that when fiscal union occurs it will be on German terms and they will have given central Bundesbank type bureaucrats the rights to oversea all of Europe's budgetry discipline and execution to plan. This should be in place by 2104. After that the ECB will pump to infinty like the FED! INflation and residual debt jubilee is their escape route thirty years down the road!

Until then its gonna be rough going and come what may! After all if in the interim the HFs burn the sovereigns that's as much the FED's problem as Germany's; as it hits their common private banking uber-alles construct; the NWO heirarchy.

So that is core first world and all of Europe and USA has to protect that common core elitist power construct! 

If that line breaks under market panic irrational pressure then its back to 1930 trauma! 

Only the math of debt on debt, aka cumulative insolvency of first world construct, can bring that down. To avoid it print for thirty + years is the game plan, where you inflate the debt away and NEVER repay the residual, come what may! 

Using the big military stick to keep Bric creditors at bay! Will that work for thirty years....????

ha ha ha ha! Lets find out! Europe is trying to achieve what Lincoln achieved in USA after a bloody civil war : continental federation without war but at a high financial and social cost, during these tipping times. When the US hegemony dies and federal Europe will be on equal footing with USA and CHindia as with Brazil/S. America twenty years down the road! 


Meremortal's picture

"When the US hegemony dies and federal Europe will be on equal footing with USA and CHindia as with Brazil/S. America twenty years down the road!"

Boy are you in for some surprises. 


falak pema's picture

that is the core of the matter today : surprises.

I don't take sides on this Euro/US stand-off in the making.

I am just developing the Merkel/ECB perspective for a federated Europe and a more balanced NWO down the road! 

But I do maintain that PAx Americana days in its current form are numbered.

What happens down the road in twenty years is anybody's guess! 

markar's picture

Why don't they just print the Euro to parity with the $. Isn't that in the best interests of Germany AND the PIIGs?

monogratis's picture

Yeh.. was talking to a Spaniard the other day... he was complaining about the exchange rate of his Eur/USD... as if his currency was undervalued... Helloooooo Europeans, you better get used to working 50+ hours/week and no vacations every year.  Welcome to America, bitchez

Joebloinvestor's picture

The last time I heard an announcement like that went something like this:


Lawyer," We will fight this case to your last nickle".

bank guy in Brussels's picture

Despite how Draghi's remarks sound like the same empty pumping bullsh*t as usual from the EU ...

But the game has turned here, EU - ECB leadership knows the whole game is finished unless they do something different

People in Brussels are taking to heart a piece earlier this week from Ambrose Evans-Pritchard ... I have been talking personally with people in the EU financial area about his articles ... and with people in direct touch with Mario Draghi's office in Frankfurt ...

Evans-Pritchard quite captured the sense of urgency, and also a viable plan ... the urgency of the situation has finally percolated up to Draghi and more especially the EU leaders ... including the Germans

Banking licence for the new EU mechanisms, bond-buying and a sinking redemption fund, is what Evans-Pritchard suggests ... and something like such a programme may well be done

Germans will drag their feet for a while, and enjoy export sales from a cheap euro as long as they can, but ultimately the Germans will go along with bond-buying etc., rather than let the German banks blow up from GIIPS debt disaster vulnerabilities

EU might actually push Greece into exiting the euro to create a few days of euro-wide banking catastrophe in order to get everybody else - including most German political groups - on board with the plan

They really DO want to save the euro as well as the banks, and their willingness to pull a bold stunt to do so should not be under-estimated

That important article by Evans-Pritchard is here


JeffB's picture

It still looks like a lot of hopium to me.

The bottom line is that many of the countries and their citizens are in debt way beyond their ability to pay it back out of ongoing revenues. Many of the largest banks own a lot of that debt that is worth far less than they're carrying it on their books. If they truly marked it to market many would be bankrupt.

I don't think this is news to anyone in the EU and I doubt this article or others like it have suddenly opened their eyes such that they now say "Holy cow, we'd better do something about this or there's going to be a calamity!"

From what I've read Germany doesn't have the resources to bail everyone out either. Even if all the countries banded together and assumed each others debts they still couldn't manage their debt load.

It sounds like "Germany’s Council of Economic Experts and leading euro specialists at the London of School of Economics" think they can solve the crisis by essentially having Germany backstop everyone else.

But the reason so many countries are in debt so far beyond their means to pay it back is that they are living beyond their means. They're consuming more than they're producing. Even if Germany (&/or a few of their northern friends) could bail out Greece, Spain, Italy & perhaps even France, that still doesn't solve the problem of ongoing spending beyond production.

To protect Germany they're putting up collateral, essentially promising to give up their gold and other capital saved by prior generations.

This plan at best would give them some additional liquidity, but it still wouldn't solve their solvency problem. They still have to figure out some way to cut spending dramatically. That "austerity issue" just won't go away. I don't see how this plan is going to wave some magic wand and remove the need for everyone to live within their means.

If they're talking about paying for all these new bonds by "printing" more euros, the same principal holds true. They'll get out of their bind by in essence giving all holders of euros a big haircut, but at some point they'll need to rein in their spending to bring it in line with production and revenues unless they can get a perpetual stream of stupid investors to continue financing their Ponzi scheme despite periodic collapses.

If printing is their "solution" I can't figure out why it would give a big boost to the euro.


tired_of_manipulation's picture

The problem is that the parties that owe money, cannot pay back the parties that they owe.  Lending more money to to those who have already blown every cent they have won't change anything.  They aren't suddenly going to find productive uses for the money they are lent! 

Economists who argue that debts and assests simply cancel out across the economy don't get it.  Lending money to be spent on things that don't generate a return, like hookers and blow or absurdly priced housing, results in a temporary boost to GDP, and long-term capital destruction.  And there is no way the capital can be replaced at the lender without stealing it from somebody else.  Austerity or QE/Inflation is about stealing capital to support banks that lent out money that can't be paid back.     

There may be a viable plan to rob the rest of us that keeps this afloat, but I doubt it at this point.  Germany isn't wealthy enough to support Europe, and humanity isn't wealthy enough to support the bankrupt bankers.  They will run out of things to steal. 

monogratis's picture

Just don't forget the wildcard - elections 2013

Coldfire's picture

Good call on this article. I've been reading AEP very closely lately. In the Eurocrisis, he has been on fire. Of course he has been a voice in the wilderness about this for over ten years so credit where it's due. In my view AEP's excellent reporting has always eclipsed his policy pronouncements. On its face the article makes some very creative suggestions. But its fatal flaw is that fiscal probity is simply assumed to appear - like a deux ex machina - and put governments on the road to sustainability. No. Giving more heroin to the junkie is rewarding destructive behavior and will ultimately kill the junkie. We are almost there. The Eurocrisis is a crisis of welfare statism. The model has fallen (and it can't get up).