EUR Plunges In Thin Market, Below 1.3000

Tyler Durden's picture

While it is unclear what just spooked the EURUSD, sending it lower by 70 pips in minutes, perhaps a better question is why the EURUSD is not thousands of pips lower to begin with. As a reminder every single large bank is pushing for a lower EURUSD on hopes that a EUR collapse will kill the market and send the ECB scurrying into printing money. The problem there is that the ECB just announced its balance sheet expanded to EUR 2.73 trillion, an expected increase of over EUR 200 billion in one week (since the LTRO), and a whopping EUR 800 billion in 6 months (that's $1.1 trillion... in six months)! As such, good luck selling to the Germans on the ECB board that EUR 1.6 trillion annualized is insufficient. Lastly, and as a reminder, here is the only correlation that matters in 2012.

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Irish66's picture

Is there a rumor that Italy is cancelling auction?

Orly's picture

Or it would otherwise fail...

That's the one.

tarsubil's picture

Will these PM prices last until Jan 3rd? Please oh please!

VegasRage's picture

Hope so but I haven't waited, I've been buying ASE's each day it goes down.

navy62802's picture

I'm hoping they collapse below $1000. I'll pick up another pound at those prices.

FinHits's picture

Hmm.. two plus two thoughts to this posting:

 

1) ECB balance sheet is expanding on the liability side, but also assets are increasing. The net exposure to Eurozone government debt of ECB has not necessarily increased much directly.

ZeroHedge just went to great lenghts explaining that practically all of the balance sheet liability increase has gone to the asset side:

1.1) LTRO is invested mostly to ECB deposits, http://www.zerohedge.com/news/ltro-bazooka-epic-disaster-banks-scramble-redeposit-free-carry-cash-ecb

Or as you say: "ECB has just confirmed that what goes out of one pocket comes back in the other, as the ECB's deposit facility has just exploded to not a 2011 record, but an all time record high €412 billion, a €65 billion increase overnight, and €167 billion higher in the past two days alone, which effectively accounts for practically all of the LTRO's free €210 billion."

1.2) The ECB secondary market purchase program of some €210 billion is sterilised by 7 day ECB deposit facility. Supposedly this also expands the ECB balance sheet by the same amount on both sides without "printing" impact.

2) Secondarily the post says that collapsing Euro would push ECB to money printing, QE. However, wouldn't QE be just a further Euro weakness trigger. QE=Inflantion=weak currency. Of course there could be a small positive confidence boost from QE, but that is psychology.

Secondarily, why would market participants first want to weaken Euro in order to then push ECB to strengthen it. Sounds unnecessarily complex to me.

Randall Cabot's picture

It is complex-more commonly known as a clusterfuck.

FinHits's picture

Sorry to be on a moaning mode, but for once it would be great to read about the USD-EUR currency pair viewed from the reversed angle:

For example, I would be positively surprised to find a ZeroHedge post titled "USD strengthens as x,y, and z drive the market up". ;-)

hugovanderbubble's picture

EFSF is downgraded by Peterssen to JUNK

SWRichmond's picture

Crap!  I thought the EUR was saved because the Italian bond auction went fabulously!

hugovanderbubble's picture

Italian Bonds,Banks and Insurance co. are all in default

Everybodys All American's picture

If the Euro can't be held up in a thin market wait until everyone wakes up from the holiday stupor.

cossack55's picture

Good luck my ass. They need Andy Luck passing golden footballs their way.

lizzy36's picture

FSLR down 75% on the year.

It is at times like this that i really miss LEO.

firstdivision's picture

Have no fear, for the PPT is here!  The PPT has set the floor for today at 1254. 

Paul Kemp's picture

Fascinating stuff - again we learn that Gold is Money. Gold is going down in USD and up in EUR while Silver is going down in both...

machineh's picture

Silver's weakness yesterday, when the USD index was mildly down (normally favorable for silver), was a divergent tell.

Today is a SILVERPOCALYPSE.

ZSL, biTcheZ!

spartan117's picture

ZSL, really?  As silver has gone from 49 to 28, your ZSL has gone from 50 to... 15?  Those leveraged ETFs will KILL you if you are a buy and hold sucker. 

ArgentoFisico's picture

Argento Fisico! Hold, buy more, and tighten your ass for the next months

Quinvarius's picture

Don't be a ZSL bag.  Gawd those people are bitter.  Reverse ETFs are built to go down no matter what.

fonzanoon's picture

wow i just ran that chart on zsl vs slv. Thats crazy shit.

LeBalance's picture

paper PM are going (who cares) as they and their markets are repudiated as meaningless.

looking at the EURUSD on a longer time scale reveals this move to be minor in character.

Quintus's picture

Think EUR is plunging?  Take a look at GBP/USD; down 154 pips in a flash.

chinaboy's picture

Was it the ECB had gone home for the holiday too early or the Fed did not have enough people show up at work?

GerritB's picture

Best time to have a plunch is when almost no one is watching!! Well i am short :)

Stoploss's picture

Watch that euro/yen parity.    Noda's going to have to whack the yen i would think.

PulauHantu29's picture

"...like a good neighbor, UK is there..."

sudzee's picture

If the UK will no longer accept euro deposits then who will. Vote of no confidence for sure.

Ying-Yang's picture

Great article Zeropoint.... thanks.

This article spells out the snowballing fears and reactions to the growing Euro debacle. A short must read!

SheepDog-One's picture

Robo? 'Crisis Over' call still in effect?

junkyardjack's picture

I'm sure his reply would have something to do with the price of gold and silver

 

http://finickypenguin.files.wordpress.com/2008/06/mr-t1.jpg

Fips_OnTheSpot's picture

Look, a cliff. Anything in paper plunging. Nice one.

bnbdnb's picture

Repo's, paper dumping. Thats got to be it.

MoreNails's picture

ECB announced that lending to banks rose 214B last week, and that its balance sheet rose to a record. Really surprising news indeed, as absolutely nothing would have suggested those figures. Either the guys selling EUR/USD on these "news" forgot that there was a thing called LTRO last week, or maybe it's just play-any-headline-that-might-bring-the-euro-lower-when-everybody's-short action. Year end performance et al.

SheepDog-One's picture

The tighter they squeeze their grip the more things slip thru their fingers.

Eireann go Brach's picture

France downgrade imminent? Where the fuck are the S&P on this impending French downgrade?...prior to the last summit they basically called this out if there were no positive summit results! I say cut the bad odored, arrogant fucking cunts down and then watch Sarkozy the midget cry like a baby!

ucsbcanuck's picture

"I say cut the bad odored, arrogant fucking cunts down and then watch Sarkozy the midget cry like a baby!"

especially after trying to deflect criticism on to the UK with their whiny crybaby "But why? Why us? Ze UK ees een much worst shape"

Bob Bercy's picture

Can anyone explain why the Italian 2year auction was 2.25x oversubscribed but only raised 1.73 bn vs the 2.5bn announced size? Could it be that the Italian Treasury wanted to keep some 'pent up demand' (Ho Ho!) for tomorrow's 3 and 7  yr auctions? In any case the market doesn't seem fooled (for once) and Italian 10yr future now back below the open.

 

ZeroPower's picture

Amount allotted is the real tell, none of that oversubscribed x times.

Point is, dealers submitted xx EURmm at Y yield. Y yield for certain dealers was over the high yield allowed, and so, not allotted. Im oversimplifying as other dynamics come into play, but this is the main point.

Bastiat009's picture

The euro/gold is going down but nobody knows why? That's funny. Maybe we should wonder why the paper currencies, be it the euro/gold, the US$, the yen ... are still relevant since they are based on nothing.

Hmm...'s picture

this is simply not true.

All things are worth something due to belief.

Fiat is worth something because we believe it is worth something.
Technically, it is "worth" the full faith and credit of the issuer... in our case this means Fiat is backed by the taxing power of the sovereign nation, with taxes being levied on wealth/production of its citizens.  thus, Fiat is backed by the wealth/production of its citizens.  (current or future or hybrid).

Now obviously, Fiat is worth less now than yesterday, and will be worth less again in the future.  It may even collapse into nothing.  All Fiat currencies eventually collapse, and are replaced EITHER by a PM OR by another Fiat. 

Gold itself is also only worth something due to belief.  For thousands of years, people have believed that it is valuable, and thus it is valuable.  there is no other reason why it would be valuable, because it has no other major purpose except that we believe in its value. 

At times, currencies have been tied to gold or other PMs.  However, just as all Fiat eventually becomes worthless, an equal corralary is that all Gold based currencies eventually collapse to Fiat.  (Don't believe me? then name a currency that exists that is Gold backed today).

It's a circle of life.  "Money" goes from PMs to Fiat to different Fiat to PMs back to Fiat again. 

The big question right now: WHEN will current Fiat collapse... and when they do collapse will the new monetary system be PM based, or a new form of Fiat?  (in other words, will we go to a gold/silver based Fiat, or perhaps an SDR type of situation?).

Most here believe it will be Gold/Silver Based, and I think there is a great argument for that idea.  However, we must remember that it is possible to convert to another Fiat system as well.

Falcon15's picture

Fiat is worth something because we believe it is worth something.
Technically, it is "worth" the full faith and credit of the issuer... in our case this means Fiat is backed by the taxing power of the sovereign nation, with taxes being levied on wealth/production of its citizens.  thus, Fiat is backed by the wealth/production of its citizens.  (current or future or hybrid).

Wrong. Fiats are worth something because the contries that issue them have laws on the books stating you must pay debts and taxes with the little slips of paper. Fiat is a latin word wich literally means an arbitrary order or decree. It is the LAW that we must use the Federal Reserve Note to pay taxes - it is LEGAL TENDER. It is backed by the "Full Faith and Credit of the United States", which is to say, dreams, smoke, and mirrors. 

At times, currencies have been tied to gold or other PMs.  However, just as all Fiat eventually becomes worthless, an equal corralary is that all Gold based currencies eventually collapse to Fiat.  (Don't believe me? then name a currency that exists that is Gold backed today).

The reason not a single currency exists that is backed by gold today is the limiting factor being tied to the gold supply. Also, when you hold gold as the reserve currency of the world, it tends to stabilize gold and silver at real, accurate valuations, not these ridiculous things we call prices now.  In fact until 1971, gold and silver maintained relatively stable market prices.

Gold was a common form of money for 6000 years due to its rarity, durability, divisibility, fungibility, and ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve.

You could only truly issue an equivalent amount of currency as you held in gold, as valued by the market. In a very simplistic examle - Let us say the US has $1 Billion dollars in gold valued at market prices stored in Fort Knox. That means that of the US was STILL on the gold standard, it could not issue more than $1 Billion dollars in currency PERIOD. When Europe, at the begining of WWI discovered that they did not have enough gold to pay for the war and meet their general financial obligations, many countries, including England and Germany removed their currency from a gold standard and were able to finance their war with unlimited money they could print, which was STILL LEGAL TENDER - fiat.

See, you are confusing currnecy and legal tender. Currency is whatever is accepted as a basis or medium for exchange. Legal Tender is whatever the laws of the land deem will be used for payment of debts and taxes. Currency between aboriginal tribes and early cultures ranged from shells to cattle. You exchange your labor for legal tender. Your labor is a form of currency, and until just after the Civil War, was a recognized form of payment. You could literally "work off your debts".

Legal Tender in the modern world is whatever your Government tells you it is. Go ahead and try to pay your Federal Taxes with wheat or cattle handed off directly to the IRS.

Stoploss's picture

Exactly. You cannot put a fiat price on gold.

Bastiat009's picture

And don't tell me that gold and the euro are not the same. They have been trading together, almost to the minute, for years. They are so tight and moving so closely together that they look like North Korean soldiers in a parade.

Jim in MN's picture

DXY's got a boner all right.  Still just a point though.  Odd.

http://www.marketwatch.com/investing/index/DXY/charts

 

agent default's picture

Behold the bonfire of the fiats has just begun.