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Draghi – We Will Continue to Fight Until Everyone is Dead
A week ago I cut a EURUSD short position that was well into the money. (Link) I was concerned that “something” might happen that could make a mess. I listed a number of concerns that might have caused a flip-flop, but Mario Draghi talking, was not on my list. Of course, that is precisely what happened. I’ve read what Mario said a number of times, I think there is no substance to his words.
"The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough"
I’m reminded of an article I wrote more than two years ago titled, Sarkozy Will Get “Stuffed” (link). The occasion was a stupid remark made by then French President Nicholas Sarkozy regarding some new measures that would, once and for all, end the run on the bond markets of Europe:
“We will confront speculators mercilessly. They will know once and for all what lies in store for them.”
This didn’t work out so well for poor old Sarko. The speculators ended up crushing him, and he lost his job. Draghi will suffer the same result.
Mario must be saying to himself,
“If only I can just get the Spanish Ten-year back to 6%, all will be well again”.
I think he’s nuts. Spain’s problem is its competitiveness. The domestic economy will never recover without a currency devaluation (and debt restructuring). If Mario has his way, Spain will suffer from a decade of recessions with unemployment over 20%. How could he possibly call that outcome a success?
On Friday we got some clarification of what exactly Draghi has up his sleeve when he promised, “It will be enough”. From Bloomberg:
DRAGHI'S PROPOSAL SAID TO INCLUDE BOND BUYS, RATE CUT, NEW LTRO
Bond buys? Rate cuts? New LTRO? That’s Draghi’s bazooka? These things have been tried in the past and have failed. These steps might buy the EU a few weeks (or hours?) of market relief, but they have no chance of turning the EU around.
There is still a market-based system that exists in the world of central bank manipulation. In the end, market forces always prevail. The outcome for the Euro will be no different. Draghi thinks he has the power to thwart the markets. He does not have that power. Draghi is either bluffing or lying, that or he is a blind as a bat.
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FX Note:
An interesting outcome of the Draghi comments is that the Euro ended the week north of 1.2300 (up 1.5%). Whatever chance the EU may have, it is dependent on a weaker Euro exchange rate. In my book, Mario’s words have set the EU back, not forward.
A week ago I swore (Link) I would be out of FX until we got into late August. The silliness of the last few trading days changed my mind. I bet all of my recent FX gains on a short EURUSD option strategy. I missed a big blip that got the Euro above 1.2400, and ended up with a fill a bit over 1.2300.
My thinking is that someone in Germany is going to say:
“Sorry Mario, you can’t have our cake and eat it too.”
As if on cue, this article appeared in Germany’s Handelsblatt today:
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"He's either bluffing, lying or blind as a bat."
So, is it also true he could not be bluffing, lying, AND blind as a bat?
I say three strikes and he's outa there.
Pete
"There is still a market-based system that exists in the world of central bank manipulation. In the end, market forces always prevail."
Fascinating. It's the only word for the shifting dynamic in the world of money.
I remember when you said that you had doubled down on your Euro short bet. I hope you remember that I said that that might not be a good idea, as the Euro has held these levels for the seventeenth time since 1993. I also said that the real tell was going to be the double-top on the Daily chart of the Australian dollar. I said that here: http://www.zerohedge.com/contributed/2012-07-08/it-aint-priced#comment-2...
Now, what's fascinating? Well, on 19 July, the AUDUSD pair nearly breached that trade signal. It has been my experience that nearly reaching the double-top level is usually not enough and double-tops generally occur in exact duplication, not in some nearby "zone." AUDUSD 1.047 was the target line.
So, the air was coming out of the pair as it was in all "risk" pairs, especially the Euro, when we got Mr. Draghi's miraculous words. I say miraculous because there is no way such an empty statement could have had that kind of effect on the markets without some sort of, shall we say... support... from global central banks and giant commercial players in 4X. It was sort of like having a Big Mac an hour before swimming the 400 meters... (hmmmm, wait a minute?)
Nevertheless and all politics aside, we're talking about technical factors here anyway. So with the market action at the tail end of the week, the AUDUSD pair did breach the target. And what happened? The Euro plunged as if on command from its masters...
http://www.zerohedge.com/news/perfectly-idiotic-market
Fascinatingly, the Australian dollar did not. What I am sensing is that the Aussie is changing from a risk-play and a trade on Chinese demand for raw materials into a genuine safe-haven currency. Watching the new paradigm unfold is almost like helping your daughter get dressed for the prom.
The Australian economy is doing okay and is on solid footing, except for that whole overbought housing thing that they will burn off into next year. The Japanese are still hanging in there as a respectable economy, despite the many calls for their demise secondary to natural disasters and horrible demographics.
So what we are going to have moving forward is a balance between American and Asian safe-haven currencies, being the USD, the Japanese yen and the Aussie. The CHieF doesn't count because they're already locked and loaded, having tied their wagon to the Euro.
I will open shorts in the EURJPY and the GBPJPY and let my robots get in there and clean up the inevitable slide in those pairs as the yield on the US 10-year Treasury note moves to below 1%. The moves in these pairs moving into 2013 are going to be jaw-dropping. Think it has been unbelievable so far? Wait 'til you get a load of this.
Best of luck to one an all!
Go teams UK and USA! Whoot!
:D
Have fun with those yen crosses Orly. I wouldn't touch them with the BoJ yammering every day about the strong yen. If you really want some bang for the buck short aud/jpy! You want to short eur/jpy at near historic lows? both currencies! LMAO...
You know, I really enjoy talking with you when you're being polite. :D Jus' sayin'.
All the EJ has to do is break through the long-term Fibo at about the 94.73-level and the next stop will be 84. The yen crosses have mirrored every move in the yield of the US 10-year note nearly exactly and yields here are going below 1%, according to Lance Roberts at streettalklive.com. Can you imagine the consequences of having the US government holding money for 10 years at basically no interest? Do you realise how much money that is?
As I said, the moves will be unprecedented. All time lows coming in 10 year yields, all time lows coming in the yen crosses. Shirakawa can yak all he wants to but this is one giant falling knife and I'm sure he's smart enough to get out of the way.
:D
Orly, I can't argue with your thesis on the T10 yields. At least wait a few weeks for all the hopium to allow a retrace before you embark on your doomsday scenario. Even if you are swing trading the pair 200 pips less on your s/l is substantial... ;)
You are right but, like you have said before, I just take the drawdowns and don't get hung up on winning rightnow. I'll wait while my robots do the work. That way, I'm not too hung out and I have someone to blame besides myself. :/
I looked at your idea of shorting the AUDJPY. Having a strong relationship with the USD, even if it is slightly biased to the downside, will have to be offset by losses in AUD somewhere else. It could very well be against the yen.
Thanks for the tip.
:D
Have a great w/e Orly. I aways enjoy your trading Ideas. Aud has a strong correlation with spx, xau, oil... Historically speaking the aud/usd reached it's highs on august 1st of 2011, then did an abrupt selloff. usd/jpy was trading the 77 handle. I just like the r/r of aud/jpy being that the trade has more topside compression than eur/jpy. The aud/usd has a lot of sup/res in the mid 1.05's,.
I'm playing around a bit with eur/aud. That pair broke the 200 hr. m/a yesterday. It abruptly sold off when the eur/usd did. I bought more at the bottom. That pair is traditionally a risk off trade, but with the E.U hopium flowing it's a win / win for me. It's also heavily oversold, The aud/usd is looking overbought on the daily charts. Any hint of bad news will send that pair back to the 38.2% fibi on the move from 1.25202-1.16795. If your scenario plays out that pair could put in 10 handles easily!
I do like that gbp/jpy idea though. After that parabolic move in gbp/usd, in a country that has a GDP of -.7% <
Glad to see you Orly. One smart cookie is you!
I am surprised Tyler doesn't ask her to write for him.
I am afraid that I am woefully underqualified for such an assignment. I sincerely appreciate the sentiment, though.
Thanks.
:D
Orly people have been saying for a while now that the aussie is breaking away from correlated risk,(no evidence though, yet), but what happened on friday night was too extreme. Personally i still believe it was a coordinated shakeout that was strictly Euro. Even the pound held up in the face of that, and GBP/USD has a 0.79 correlation with EUR/USD (AUD/USD is still at 0.86 btw…go figure), in fact the only pair more correlated with EUR/USD than these two is EUR/JPY(and only slightly so!) So either these correlations have completely snapped at 7:30pm on a Friday by way of rumour mongering al a carte, never to return until yonder years...or, as i said, coordinated and isolated mauling of newly stated longs hoping to break 1.24 on latest bout of bullshit.
We'll know by tuesday maybe, and from my end i stand to lose if im wrong...i added to a position on friday and averaged up my entry to 1.23. I would be neglecting some of my bitterest memories if I said I had never fell for this type of move before…brokers will be rubbing their hands together this weekend knowing that when they return on Monday, a whole lot of sweaty FX traders have gotten the jitters over the weekend and closed out. Im prepared to pay through the nose if im wrong. Seriously though, its got bullshit written all over it.
And so the question I ask is why was the action on Friday so extreme? In my view, where there is smoke, there is fire.
Remember the double-top the Aussie was supposed to make on the USD at 1.047? After the full retracement had failed, it was plain to see that the pumps would have to drive the Euro higher because it was showing significant weakness. They tried that, using conventional means but the pair was only able to retrace 50% of the down move after the failure at 1.047. The upward momentum had stalled and it was clear that the next leg down would be a Dusie.
Right then, Draghi comes out with his six miracle words and the pair rocketed through all the way to the original target. Admittedly, I was studying the AUDUSD as well as the USDJPY pairs and not the Euro, so I may have missed the "character" of the pair at the time. However, the same spike correlates with the pair at 1.215, which just so happens to be the same level the pair gapped down through at the beginning of the week. (Dunt-dundt duhnnnnnn......) The EURUSD was able to cover the gap but just barely and was showing no upside momentum at all...until Draghi saved it with his skate blade.
What is specifically valuable about these levels to the Euro, I have no idea. They are, however, quite significant to someone over there, as the pair has danced around this level since its inception...big, swinging waltzes, yes, but on this dancefloor nonetheless.
In regards to the AUDUSD switching roles here in the middle of the fight, there have been nuances over the past few weeks that have made me cock my head and go, "Hmmmm," especially at the close of trading last week. The action in the Aussie makes no sense historically unless it is indeed changing roles at this juncture. There has to be some new safe-haven currencies and they are going to turn out to be what have been called the commodity currencies: the Aussie and the Loonie (CAD...). We'll see.
:D
PS And go team Ukraina!
East or West Ukraina, speaking poRuski ele poUkrainski ? Sounds like Ukraina may be ready to join Euroland
Why so extreme? Simply to freak people out, the spot markets have become a game of who blinks first. With so many retail traders, most of them falling for the scam of high leverage, all it takes is a swift 100 pip move to get margin calls on thousands of accounts. Intraday spot FX is a consummate scam with people getting paid good money to fill retail traders full of shit about the validity of the market, and they’re chance of success in it. 99.9% of retail flows don’t get anywhere near the spot market, they just land on the wrong side of the brokers book... the broker lays off the risk, but ultimately someone somewhere takes on the risk, and it usually lands at the feet of a huge FX bank. Institutional traders talk to each other, maybe one or two see that the actual spot market depth on EBS is thin and say, hey lets clear the decks and get rid of this risk on our book while we have an open window, and make a few quid while we're at it. Everyone is a winner...except the poor retail chap who was told he could "trade like a pro with 400:1 leverage".
You didnt happen to be looking at CBOE EURO vol before you made your call Bruce? A 12% spike occurred on the 23rd, i thought there was something suspect about that; they could have been hedging that squeeze that just happened. But someone definitely had a heads up, no one is that lucky.
http://www.bloomberg.com/quote/EVZ:IND/chart
If that's Italian gold at the ECB does he have a choice? Obviously not. Shakespeare is so right in every way: we all have our roles to play, it's just a question as to whether we play it well or not. The market has responded to the Mario Brother move...that says to me "it's more than just the Super Mario's"...but we will have to wait and see indeed! The meetings are this week..."and the market opens Monday." 9:30 East Coast standard in case anyone out there was wondering.http://www.youtube.com/watch?v=kcmKPmj9yeE
I am not so sure. I am getting a little uneasy about the market's power. The market should win out. The CBs should get their butts handed to them. But I live in the U.S. and I can see the creeping tryanny. The U.S. is sending it's financial enforcement agents all over the world (more than ever). Other countries are falling in line. Governments are expanding (well, maybe contracting a little in the last couple of years). Can the governments and CBs wrest control of the economy away from "the market". Are they too powerful? Or should I say, are they powerful enough to stop bond vigilantes, tax havens, etc? I am getting worried that the answer is yes.
Here we go again. Good post--and would have given you a greenie but the italics seem to fuck things up, quotations marks or not.
Tyler, you gotta fix this #$@^% thing! Milestones P.S. if you want to comment use green for yes and red for no for the poster.
Controling FX, equities, bonds, etc is a totally paper world that requires only paper/electronic control + jawboning.
Controlling real value;ie, commodities, is a different challenge that requires more than paper + jawboning.
How much more printing can be done without social unrest causing the collapse of some govs?
Mr Market always wins... juat a matter of time.
Bruce, you under estimated the power of the vampire squid
Indeed. Mister Draghi spent three years at GoldmanSachs University. He should be an expert in making a market appear strong and upward so that his buoni amici can pick a basket of bonds to get credit default swaps on before the collapse. This isn't rocket science.
Indeed, it is rocket science ... to quote Feynman ... (its the last line) ...
All laws descend from natural law, common law. This law can never be rewritten and does not require men to make it true.
This whole she-bang is going to come down sooner or later, and no one on this Earth can prevent it. There are many, however who can profit, in a lot of different ways, at great suffering of untold multitudes more.
When I die of old age (I am 40 and expect to hit 80), I suspect I will have an annual energy budget along the lines of my grand father when he was my age (~1935), but the trend then will be going in the other direction.
How this world expects to sustain wealth creation, between here and there, beats the fuck out of me. Hippies seem to have it figured out though, yet they still seem a bit too bourgeois. Jury is still out on that one, me thinks.
Regards,
Cooter
We Will Continue to Fight Until Everyone is Dead*
*and then we will all vote in Chicago
good job Bru$e.
Bruce, I have been in EU offices this past week talking to EU staff members ... there is more 'substance' to Draghi's remarks than first meet the eye.
Draghi is expressing the medium-term view of what will happen, during possibly September - October ... the Germans are expressing the short-term view, push down the euro and keep German exports pumping. The Germans are in a political box as to what they can say out loud, but they see the writing on the wall. - It is somewhat a fake 'conflict' at this point, between the Germans and Draghi.
Ultimately, the EU has to print and buy bonds (and do something like the ECB banking licence) ... if they do not, German banks are going under along with much else.
However, the EU printing programme cannot go forward against political opposition, unless sufficient 'crisis' is created. What may be allowed to happen to create this, is a hard, messy Greek mass default and exit from the euro-zone, sending contagion not only to Spain and Italy, but to the French and German banks, like the post-Lehman-style meltdown on 18 Sep 2008 four days after the Lehman bankruptcy on the Sunday night before.
The idea - as has been long-term part of the EU project programme, if one reads deeply enough into the historical comments of major EU architects - is that severe crises are ultimately needed to politically push through the more advanced phases of EU programmes.
The issue now is how to sell the bond-buying programme to all the sectors in Germany and the AAA countries. Severe measures are needed, and Merkel and company need to be able to claim they held out for as long as they could, until the verge of systemic collapse made a new course of action necessary.
What is somewhat clever now for the EU elite, is that they are still somewhat 'staging' the EU merger tendencies, even after a near meltdown, they will not yet go totally 'fiskal-union' but just enough of the measures - bond-buying etc. - to handle the quasi-systemic crisis that will likely be allowed to erupt shortly.
Possibly they do not have control over what will happen ... Greece's euro-exit could create unstoppable momentum that leads to Italy leaving the euro and the 'Project' coming to full-stop.
But they are going to play out the hand. - In the end, the Germans have realised they committed a parallel mistake to the Mediterranean states, when they let the German banks get over-leveraged. Draghi is the advance man, the Germans are covering the rear with the propaganda they are still 'hard-money' people. But the Germans at the highest level already know that hard-euro-money is already dead via the over-leveraged German banks.
That's all nice and fine, but you are ignoring one point:
What will they do with Germany's Consitutional Court and their decision?
- Dissolve the court?
- Go into open violaton of the law?
- Run a national referendum and get 67% of the votes for a constitution change that allows Eurobonds?
Memo to Bank Guy in Brussels:
They may well use a deepening crisis to achieve "more advanced phases of EU programs" but are your buddies in the Eu able to tell you how the day after a new enhanced EU will they combat the accumulated debt of nations, the severe unemployment, excess cpacity, competition from China, the bloated bureaucracies, the demographic time bomb which is further heightened by Muslim inroads into European birth data and the disparity between nations when comes to taxes, retirement and deficits?
Your buddies in the EU live in cloud cuckoo land if they think that another scheme will work this time round. They are maniacs extending the hangman's noose for the sake of keeping their paypackets and power. Nothing more and nothing less.
Peter Pan, please inform us, how will the US Citizens handle those problems? The EU-issues are just a distraction from the real problemss$$$$$. But of course, the Americans are enjoying the show, enjoying that the spotlight is on Europe.
TBTB R TBTF
In answer to your question as to how they will del with those problems, I say the following:
The USA's problems in many respects are greater because from being the world's policeman it has gone to being a rogue cop. It has spent itself broke in the process of making enemies, it has bankrupted its children through eucation debt, it has allowed its infrastructure and cities to decay and it has subsidized its orporations by providing food stamps so they could continue paying poverty level wages.
There is nothing left of that great nation other than its increasing technical ability to track the communications and movements of its people and to wage war war war.
How will the USA fix herself? i am not sure but what I will say is that unless there is a repudiation of evil and of over the top greed nothing will change.
Unless an honest day's work can feed and house a family, unless a certain level of spiritality is restored, and unless financial wrongdoers are punished, the healing will not begin.
So yes, the USA is no better than Europe and in fact far worse.
"The USA's problems in many respects are greater because from being the world's policeman it has gone to being a rogue cop."
You got that right!
:D
Tks for this BGB.
I agree. To clear the decks a crisis is needed. But everything I see being done is to avert a short term crisis and kick the can down the road.
So... too much debt and too little income and the solution is to... print money. How's that been working for ya, for the last 5 years ?
GM ad, here on Zerohedge. 0 percent interest for 7 years. Financialization gone insane !
we have a..."localized event"...in America called a "pig pile." That's when some poor hapless partygoer (Germany) becomes the target of "the mass of drunken humanity" in a surprisingly organized way. (IMF, the Fed, the ECB, NATO, the United Nations, God) here's what it looks like in practice:http://www.youtube.com/watch?v=8_SJL9OmvMc&feature=player_detailpage
starts with wrestling everytime...
US Citizens expressing their homosexual tendencies in a US Citizen way.
the only person gay here is you.. get over it, get used to it, get a life
Liberte, egalite, fraternity...far from "merely French." Pig Pilee on the other hand...
Pig pile on the other hand ...
... allows boys to express their homosexuality in a society which [until recently at least] has discouraged this act.
looks to me like by Oct/Nov will be the collapse.
get ready
survivingsurvivalism.com
does that mean ... you wonT be particpating in Project Mayhem 2012?
I'm beginning to think the EURO is a cult.
The Cult is this "The Euro Will/Must Die" Thing. On which you can't even bet anymore, in Blighty, the bookies won't reopen the books.
It's very easy, in the English-speaking media landscape, too FLOOD the channels with selected memes, like this new one.
Show me how the English speaking Irish are hitting the streets chanting how they want to exit the eurozone. Show me the last referendum's results on gov budget limitations. Nobody noticed, eh? Does not fit the narrative.
Why are you so pro-euro? The irish don't owe europe anything.
Because he'd rather have the euro be the future preferred medium of exchange than the dollar or the renmbi.
I know the meaning of Blind, but what is the difference between Bluffing and Lying ? Polititians Lie, speculators Bluff, and Bankers are Blind to the reality of their balance sheets.
"Bankers are Blind to the reality of their balance sheets."
Bankers clearly understand their balance sheets. That is why Government cash is immediately directed into bonuses for the criminals.
Holy stuffed cabbage batman, we need some more corned beef.
The whole point of the Euro or at least the poduct sold to many in politics was its ability to buy oil like the Americans.
Now we can't buy oil like the Americans nor print domestic currency to sustain domestic commerce.
Its the worst of all worlds...... indeed it was a trap.
PS
I don't get this mantra of Spain’s problem is its competitiveness or Italy or even Greece.......they have a wealth of capital investments just lying around with no people using them......for example think of all those near empty high speed trains in Spain.
European economies were split open like a hazelnut post 87.....they are infact extremely open to capital and labour flows as they are the most extreme market states on the planet.
What they are lacking is national currencies that can recycle their wealth back into national systems.
Once this happens the BRICs will fall like dominoes as the EMU & the Euro created this fabric via the combined Core European wage deflation / capital exports to China and other favourite slave states of the Banks.
However more then likely yee will get the surplus oil that will flow from this implosion.
Its a strange reserve currency world out there with a German Planet of the Apes feel to everything Southern European.
www.youtube.com/watch?v=gnrfBOm6FhQ
These now huge cross border multi decade capital flows are now becoming a millstone on all economies......net nagative to pretty much all human life outside of the true PIGS in the City.
Yes, I agree. There's no economic problem at all. Except for a ruling elite that syphoned all capital, and vitrified it, instead of returning it into the economy.What a difference with the Spain of 2007 (last time I lived there). And yet so little has changed.
I think it's more a psychological war than anything else, how far are people willing to go until they revolt? Are they going to revolt? The Basques have always been fiercely independent. Remnants of the old gealic people, now dispersed everywhere else. Except for Bretagne and Normandy. Same story. A nuclear plant was built there, but repetitive attacks of a resistance group supported by the population (the object is not fear, it's the removal of the plant - so you can't call it "terrorism") caused the central planners to give up.
https://en.wikipedia.org/wiki/Brennilis_Nuclear_Power_Plant
The EU is indeed a trap; Centralised government, with a back door wide open. And because nation states not really dissolved, the people of europe divided and easily put against each other.
Unless the back door to power is not closed, the proposed transfer of souverignity is no solution. But still it's in the works, as if this failure of the financial system was all planned. I think it was. The sad conclusion is that there's going to be an armed conflict, or (continuation of) debt peonage. There seems to be no way back for the central planners.
@Repil
You can't really be sure who pays the terrorists...............
Spain only joined the EEC in 1986 ......I was told the Spainish had a hard currency $ problem in the early 80s which really caused this shutting down of future Nuclear plants post 1983~ but I don't know really.
Me thinks it was the global oil glut of the time although the $ thingy was related to this me thinks.
If Spain and Italy had those few extra Nuclear plants on line they would have a almost Finnish like capacity to eject from the Euro Solar System......but they don't.
en.wikipedia.org/wiki/Montalto_di_Castro_Nuclear_Power_Station
Italy has not grown partially because of the first Marios anti Lira like policies so as to get Italy into a Euro like cage during the late 1990s but also because of a terrible energy policey which prevents growth and now will cause a real contraction as Nat Gas gets more and more expensive.
good stuff Dork