Europe Unfixed Again

Tyler Durden's picture

Slowly things in Europe are starting to go bump in the night again, with the EURUSD down some 150 pips from Friday's multi-year 1.37 high, Spanish bond yields spiking 20 bps to over 5.41%, back over the declining 50 DMA, Italian BTPs getting slammed up some 10 bps to 4.42%, as both Spanish and Italian stocks are sharply down on the day, by 1.2% and 1.9% respectively, following yet another Monte Paschi halt lower earlier in trading. The reason goalseeked by the media for today's weakness is signs of upcoming "political turmoil", namely the escalating Monte Paschi incident out of Italy, which we have been following closely, as well as the Spanish graft scandal, in which the ruling PP party and Mariano Rajoy have been implicated in massive kickbacks, and which may cost Rajoy his leadership at this pace. Of course, none of the data above is new, and neither is France's Moscivi repeating for the second time in a week that the EUR has risen far too high, and to call it catalytic is very naive, but it merely goes to show how the manipulated market decides when and if to actually follow the newsflow. As a result, US futures are pointing to a mildly lower opening, which however may reverse quickly once today's $2.75-$3.5 billion POMO kicks in. Of course, if the Italian political turmoil drags Draghi further into the mud, all bets are suddenly off about Europe being "fixed."

Key overnight headlines:

  • Spanish opposition calls on PM Rajoy to resign over corruption allegations
  • Spain’s Rajoy Fails to Quell Graft Criticism
  • China Jan non-mfg PMI up to 56.2 vs 56.1 prev, marks a 5-month high
  • Japan GPIF Mitani: to review asset allocation in April, 67% bond holdings "harsh" especially if Abe succeeds
  • Nikkei +0.62%, 10y Bund yield up 3bp at 1.70%
  • SPGBs, BTPs Plunge Amid Signs of Political Turmoil
  • Spain Registered Unemployment Rises Amid Deepening Slump
  • Merkel Cabinet to Pass Bank-Separation Plan: Handelsblatt
  • Cyprus at Odds With Pimco Report Method, Shiarly Tells RIK
  • Europe Investor Confidence Rises to 19-Mo. High, Sentix Says
  • Ireland ‘Coming Close’ to Anglo Irish Note Deal: Minister

Markets, via BBG:


  • Spanish 10Y yield up 19bps to 5.4%
  • Italian 10Y yield up 9bps to 4.42%
  • U.K. 10Y yield up 5bps to 2.15%
  • German 10Y yield up 1bp to 1.68%
  • Bund future down 0.06% to 141.93
  • BTP future down 0.68% to 111.81
  • EUR/USD down 0.51% to $1.3569
  • Dollar Index up 0.42% to 79.45
  • Sterling spot up 0.3% to $1.5732
  • 1Y euro cross currency basis swap little changed at -18bps
  • Stoxx 600 down 0.25% to 287.49


  • ECB Preview: Draghi May Sound More Dovish; Rate Cut Unlikely
    BoE Preview: Watch Incoming Governor Carney’s Treasury Address  
  • Short Semi-Core Debt on Periphery Risks in Feb., RBS Says
  • Enter Bund/ASW Widener; Target 40bps, Morgan Stanley Says
  • Target 400bps for Spain/Germany Spread, Commerzbank Says
  • ‘Risk-On Mode’ May End Soon as S&P 500 Overvalued: SocGen

Outlook, via SocGen

There will be little economic news this week, putting the central banks in the spotlight starting with the RBA tomorrow where a rate cut cannot totally be ruled out after weak employment and lower inflation data. There will be little to salvage for the AUD should they cut given the poor correlation with risk at present.

The Fed last week confirmed it would continue to purchase Treasuries at the current pace of USD85bn/month until sufficient improvement in the economy was achieved. The 7.8-7.9% rise in the unemployment rate last Friday underpinned this position, but as we saw from the price action on Friday, this may not stop the uptrend in longer duration UST yields ad swaps.

What about the ECB this week? No change is expected in interest rates: Mr Draghi shattered all hope of a rate cut last month, and confidence indicators have stopped deteriorating though the divergence within the euro area is not going away. However, the market will be waiting for the ECB president's comments on the first LTRO reimbursements: 305 banks have reimbursed EUR140bn, which is a good performance. Investors were no doubt too optimistic regarding a quick and massive withdrawal of liquidity by the ECB.

However, the tone has been set. This will undeniably support the EUR and EUR rates, but will comments on the currency slow the currency's ascent? Spanish politics are perhaps a good excuse to lock in profits.

Although risk appetite was mixed at the end of last week (reflected by the slight decline in rates), we still do not see any factor justifying a long-lasting turnaround. The EUR should remain in demand overall and EUR and US long rates are still skewed to the upside

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GetZeeGold's picture



When is the next press conference again? Is that before or after the next referendum?


Ghordius's picture

which one? the Scottish, the Catalonian, the one in Flanders or the one on the exit of the UK from the EU? plenty of referenda upcoming, some earlier, some later, some much, much later

GetZeeGold's picture



Reminds me to write another letter to Sen. Feinstein about banning assault trees.


When you realize you have no talent it's OK to be a Senator and make the rules for everyone else.....just look at Al Franken. Just don't go skiing...cause that takes skill.

Ghordius's picture

great movie. here, Groundhog day explained - there is even a conspiracy theory around one of them, complete with a secret society and magic groundhog powers and language

ParkAveFlasher's picture

If Europe keeps getting fixed, I'm gonna need more gold.

bank guy in Brussels's picture

'The Crisis is Over' famous photo, all 3 EU Presidents nearly naked

(José Barroso - EU Commission, Herman van Rompuy - EU Council, Martin Schulz - EU Parliament)

Nigel Farage looking on in his pink shirt and tie, gold Nobel prize included

Photo art from Bluma Berlin, via William Banzai

q99x2's picture

Draghi would make Madoff a good bunky.

Ghordius's picture

for a moment I thought you were talking about the right honorable Mr. Corzine

Inthemix96's picture

Herman the "Van" rumpoy is on it.

Seriously this weasel faced fucker has a face like a bulldog licking piss off a nettle.  And 10-1 odds he is a fucking peodophile, horrid shit stain of a man.

And dont get me started on that cunt Barroso, communist marxist prick.  Wankers, all of them, they couldnt organise a piss up in a brewery.

Global Hunter's picture

I think the same thing as you when I see Van Rumpoy but in my opinion you overstated the odds, his face screams out 100% chance to me.

Inthemix96's picture

Spot fucking on Global Hunter.

This man looks like something out of the golem.  Hell is warming up a nice spot for the retarded fucking imbecile as we speak.

You wouldnt trust this shit head to look after your dog, never mind an economy the size of the EU.  Communist fuckers mate, all of them, and still on our coin.

Ghordius's picture

I would not trust anybody "to look after an economy" and the whole concept is imho a bit whacky

sure, historically markets are what governments encourage, and the debate on how to structure them is endless

but "looking after the economy" smacks me as the usual politician grabbing some undeserved merit: "look here, the economy is booming, that's me! me! me!"

meanwhile the whole world has still to digest President Nixon's actions in 1971 and it's consequences

Inthemix96's picture

Aye mate,

And a whole world of pain is heading our way while these flight of fancy communists on our coin plus expenses fuck us all sideways and we continue to slide into the abyss.  Still we sit back and do nothing.  When this does come crashing down, as it will, I wouldnt want to be associated with any one of the fucking fools.  Heads will roll mate, it is only a matter of time.

4exNinja's picture

Looks like EURUSD is finding support around 1.3550...and should it drop further the next level is 1.3480. Either way, I still think this is only a "retracement" allowing the pair to catch its breath before edging towards the 1.3800 level (and beyond). 

Orly's picture

The pair to watch is Cable  A break below 1.568 could send it all the way down to 1.42.

Something tells me that Mark Carney approved this message.


4exNinja's picture

As a UK resident I wouldn't be surprised to see this happen...we're in big trouble. We had a hotel real estate conference last week, and general consensus was that we'll suffer until least outside of London. The UK's pretty much like 2 countries in that respect, there's London (doing ok) and then the rest (outch). 

Either way, I think despite some EU politicians moaning about the high exchange rate, we'll probably see 1.4000 before a stronger correction...or even 1.4200...people like round figures. We also have the US fiscal cliff "kicking of the can" until March, and I doubt the USD will make any large moves to the upside until after that event. Also, US equities are at highs (giant bubble of doom) and a correction should happen sometimes soon(TM). 

Should be a fun time for forex's a "race to the bottom" as countries artificially try to boost exports in an effort to fix unemployment and economic growth. 

Orly's picture

Should be a fun time, if you don't mind getting your head taken off from time to time.


1.42 on what? Cable or EURUSD?  I'm talking about 1.42 on Cable.


4exNinja's picture

Both in fact...eventually. 

I trade using D1/H4 charts as my general "trend direction" and then time entries on the H1 and M15 charts. 

A retracement for EURUSD was long overdue, especially given it reached the important 1.3700 level last week. It'll catch its breath and then continue its upswing. Don't ask me how this is supported by fundamentals, I don't trade based on fundamentals...because that would require markets to react logically to fundamental news...something that hasn't happened all that much lately ;)

But yeah, the cable's interesting at the moment...interesting to see GBPUSD so decoupled from EURUSD. 

Either way, I'm standing on the sidelines at the moment until the market makes up its mind. EURUSD could drop down to 1.3488ish before resuming its up trend. 

Orly's picture

Sounds like we have much in common, Ninja.  I haven't seen you before.  Have you been here long?

I have the E$ retrace to 1.338, according to harmonics.

I have a robot scalping short on Cable.

4exNinja's picture

Yup, I've been on ZH for a while now...good site to get another perspective on fundamental stuff (even if that barely influences my trades). My main "online hangout" is the Forexfactory forum...same username ;)

My main system is THV (check it out on the Forexfactory forum if you want), and it seems to be a pretty good system for swing traders. 

Personally I'd be surprised to see EURUSD drop below the 1.3400 level...but 1.3380 is close enough ;)

Either way, the way I look at it is that every dip in EURUSD is just another buying opportunity. 

Orly's picture

I am there, too.  Same name.

I don't comment or post much as I don't fit into any system per se.  No one analyses the stuff anyway, so why bother?

See ya 'round!

forwardho's picture

the EUR has risen far too high, and to call it catalytic is very naive

Catalytic? It is naive to think its not cataclysmic?

LongSoupLine's picture

All that matters is Dick Bove says buy ALL fucking banks.

WTF!!! We have hit the fucking top!

LukeWorm's picture

At least one thing is fixed in Europe:  football matches 

LeisureSmith's picture

I will keep smoking crack and chugging methanol until my money problems and blindness goes away.

100pcDredge's picture

POMO... dori...


CheapBastard's picture

Everything is "fixed" in the USA, MSM reports:


The global economic outlook brightened substantially last week when data showed U.S. factory activity quickened in January and hiring increased, and a euro zone business activity survey suggested the worst of the region's downturn may be over.


See, "fixed."

Grand Supercycle's picture

Get Ready Bears...

Wile E. Coyote overdue sell off awaits as SPX daily & weekly charts continue their protracted topping process from current extreme levels.

thismarketisrigged's picture

how is europe in trouble? they are recovering real nicely, everything is going great, that is of course if u believe the fuck heads on cnbc, lol


maybe, just maybe this can be the start of a global collapse, we shall only be so lucky



4exNinja's picture

My suggestion is to stop worrying about fundamentals so much. Fundamentals only matter if the market reacts LOGICALLY to fundamental news...that's CLEARLY not the case. Nowadays political slogans drive the market more than anything. For example, despite negative EUR news, the currency can trade upwards as long as Draghi & Co come out with some hopium message...something that happened a ton lately. 

All that matters is what PRICE does ;)


NEOSERF's picture

Beyond being fixed, what gives any indication that Europe is under anyone's control?  Sort of like global warming, the earth and financial markets have a propensity to "fix" themselves regardless of human intervention.

4exNinja's picture

Thursday's EUR interest rate decision will be the key trigger for another strong move up (because they'll keep it as is), or a move down if they all surprise us with another rate cut.