Gold is getting set...

The gold markets fell during the beginning of the Wednesday session, but as you can see bounced back above the $1600 level, to only reinforce the feeling of support at this level. The candle that was printed for the session was a hammer, which of course is bullish in and of itself. If we can get above the $1620 area, it looks like we could breakout to the upside and pick up $40 relatively quick. Is it $1660 that we start running into significant resistance, but we think ultimately the gold markets will go higher. 

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White Star..Divergence on CCI.....

Yellow Star, with the trend, hitting support, divergence Perfect!

Yellow Star, divergence, with the Trend

White Star, divergence, get ready..

White Star, divergence....lots more text coming!

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Where the Hell is Spring?

The end of the Cypriot incident is not really the end, of course. The only way Cyprus can thrive is by imposing capital controls, even against its fellow EMU members—something that is expressly forbidden in the Maastricht Treaty and old-fashioned, too boot. The modern world is supposed to be free of capital controls. In fact, members seeking to join the EMU have to have “free markets,” among other criteria. The only case of capital controls in recent history is Malaysia during the Asian crisis. Then the IMF disapproved, but later came to agree that countries being victimized by currency wars (Brazil) could impose controls. 

From the Cypriot point of view, the controls seem to be the death knell for its place in the world as a taxhaven and money laundry. This is what the Eurogroup wanted—for the banking sector to contract to a reasonable ratio to GDP (with Luxembourg, whose banking sector is even more bloated than Cyprus’, escaping such a judgment). Quite how capital controls are going to work is not clear. Are Cypriots cut off from the rest of the EMU financial system now? And as the WSJ says, “… lasting damage has likely been inflicted on the Cypriot economy…. Cyprus could see its economy contract by 10% or more in the years ahead, economists said.” The sustainablility of Cypriot public debt is therefore just as questionable as it was before the crisis. Moreover, as the FT reports, Swiss and UK banks are scrambling to pick up the tax haven (and presumably the money laundering) business. The Cypriots see it as hypocrisy—they are being deprived of 50% of their GDP so others can take it. But the UK and Switzerland are not EMU members. 

Therefore, if you are an EMU member and your banks get into trouble, the Eurogroup will go along with any stupid idea you may have about defaulting on deposit insurance or capital controls. If you are a bank depositor, you are now required to evaluate the solvency of your bank. Technically, a depositor is a creditor, but hardly anyone has the qualifications to judge bank solvency or capital adequacy. That’s why we have deposit insurance in the first place. Capital flight, either slow or fast, is the inevitable outcome. The ECB’s regulatory subsidiary had better get going PDQ. Net-net, the euro is at risk of a steady drip-drip-drip of outward cash flows on the loss of confidence in the only EMU institution with any power and credibility, the ECB. As we wrote last week—cui bono? Switzerland, the UK, Hong Kong, even the US. Well, maybe not the US. As we see from the tepid euro relief rally so far today, the EMU has lost the confidence of its citizens. Nobody knows how far the loss of confidence will go, or when, but a river has been crossed and the troika did itself lasting damage. 

Elsewhere, the US Congress gave itself another two-week holiday out of Washington, having passed two budgets. This looks like progress (to some). We don’t get any big data releases this week so attention turns to the Supreme Court judgment on gay marriage (along with France’s), the bankruptcy of Stockton, CA and maybe how the Feds are going to run Detroit. More dead pigs (16,000) are found in a Chinese river and commentary on pollution and environmental destruction in China is being cacophonous. And it’s still snowing, not only in the US but also the UK. Where the hell is spring?

EUR/USD Saga Continues..

The bloc currency remains trapped around the proximity of the 200-day moving average on Tuesday, flat-lining in a wait-and-see mode against the backdrop of increasing fragility in the Cypriot front. At the moment, seems that both capital controls and the final levy on deposits above €100K would dominate the headlines in today’s session, as the re-opening of the local banks on Thursday looms. 

… Fears of contagion on the rise

The inaction seen in the EUR/USD since 2013 lows on Monday around 1.2830 has extended overnight alongside the lack of news emanating from Cyprus. Furthermore, that scenario remained pretty much unchanged into the European open, as markets seem to favour the isolation against the ongoing rumours that have been dominating the price action as of late. 

Nonetheless, the D-Day in Cyprus would definitely be Thursday, when the banking sector meant to re-open its doors to the public. The subsequent reaction of both depositors and banks would be under the microscope, as well as any echo on the Spanish and Italian debt markets – the next victims?.

Anyway, investors’ confidence remains badly hurt and it is posed to keep on taking the brunt of further (surely unpleasant) events in Cyprus. Furthermore, market participants continue to be vigilant, paying close attention to comments by EU and Cyprus’s officials after yesterday unfortunate declarations of Eurogroup’s J.Djisselbloem. After all, words rather than facts have been the main drivers since the crisis in the island aggravated. 

In the technical field, the cross returned to trade within the downtrend channel set from February highs, after the attempt to follow through the psychological limestone of 1.3000 on Monday did not prosper. It meanders around the 1.2870/80 region, home of the 200-day moving average and December 2012 lows.
Initial north barrier sits around 1.3075 – Fibonacci retracement of 38.2% of July’12 – February’13 upside – ahead of 1.3107 (March 15th high), If strong impulse persists, then 1.3134 (March 8th high) would be exposed. 
Further downside however would expose the region of 1.2660/80, home of the November lows and the 61.8% retracement.

Euro Ignores Drop in Ifo Hopes for Cyprus Resolution

Market Drivers March 22, 2013

IFO misses but market doesn't move as all eyes on Cyprus USD/JPY selling accelerates on profit taking, nothing new from Kuroda Europe -0.56% Nikkei -2.35% Oil $92.51/bbl Gold $1612/oz.

Europe and Asia:

AUD Conference Board Leading Index 0.2% vs. -0.1% EUR German IFO - Business Climate 106.7 EUR German IFO - Current Assessment 109.9 EUR German IFO - Expectations 103.6

North America:

None

The IFO report missed its mark declining for the first time in 5 months, but the news had little impact on the EUR/USD which remained above the 1.2900 level in morning European dealing as all eyes remained on Cyprus. The situation in Cyprus remained unresolved as the Finance Minister failed to get an extension of the loan from Russia while the Parliament continued to debate an alternative plan that involved the possibility of monetizing some of the country's gas reserves via a bond offering.

With no concrete plans on the table pressure continued to mount on Cyprus and Angela Merkel added to it, by stating flatly that the country's business model of attracting offshore deposits was dead irrespective of how the banking crisis is resolved. A spokesman for the Cypriot Parliament is expected to make an announcement this afternoon and the current hope in the market is that some sort of a solution may be reached before the week-end.

If Cypriot lawmakers are unable to reach some sort of a solution before the markets close, the downward pressure on EUR/USD may resume with traders fearful of holding positions over the weekend. For now the pair remains remarkably resilient on hopes that some sort of a solution will materialize.

Meanwhile as Cyprus continues to command attention, the news on the economic front shows further deterioration. The IFO sentiment survey dropped to 106.7 from 107.8 forecast, as fresh concerns about the EZ credit markets clearly weighed on business sentiment and demand began to taper off. This is the first drop in the IFO reading since September and may be an ominous sign that the economy in the EZ is beginning to worsen rather than improve as the quarter progresses.

This possibility is being ignored by the market right now, as Cyprus dominates all flow, but when traders attention turns back to fundamentals the prospect of negative growth in the EZ not only for this quarter, but perhaps Q2 as well, could start to sink in and that in turn could put fresh downward pressure on the unit after the Cyprus crisis is off the front page.

EUR/GBP the First EWS text

EUR/GBP shows divergence on the 4 hour, White Star, in an uptrend on the 4 hour and daily..

In the next chart we can see...

Once more on the lower charts we see the White star, notice the WA Explosion has gone green above the yellow line..

The Stochastic confirms upward direction, from an oversold position and divergence.

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