Vantage FX | Mad Dutchman torpedoes Euro rally, USDJPY breaking lower | 26th March 2013

March 26, 2013

The Cypriot bailout euphoria that washed through Asia and into early European trade was torpedoed by the Eurogroup head and Dutch Finance Minister Jeroen Dijsselbloem overnight with some triumphalist but extremely loose talk about the success of the Cyprus bailout and the blue print it offers the rest of Europe.

Yep, the very fear we had about the specificity that some were claiming Cyprus being seen rather as a general plan for wider Europe was front and centre after our man Dijsselbloem managed to salvage defeat from the jaws of victory after the deal on Cyprus had seen stocks up and the Euro back above  1.30.

In an interview with Reuters and the FT Disjsselbloem opened Pandora’s Box by insinuating that what happened in Cyprus may now happen in Spain, Italy, Greece and even France. Of course we’ve been writing about this very thing for a week now but we never thought the bloke who is responsible for trying to support Mario Draghi’s efforts to stabilise Euro area markets would toss a hand grenade into the crowd. But he did – here is what he said,

What we’ve done last night is what I call pushing back the risksIf there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders…

FT Alphaville has a great take down of Disjsselbloem and even though his underlying message that both investors and depositors need to look at the financial institution and their strengths and weaknesses before they invest or deposit is sound the delivery lacks any finesse at all. Perhaps he meant to hit markets, there is no telling and we do expect this type of doctranaire thinking from the Dutch Finance Minister in private but in public a bit more caution is warranted.

The 15 minute chart above of the Euro tells the story and FTAlphaville says that “the immediate result on Monday was six per cent off the price of Intesa Sanpaolo stock, six per cent off Unicredit, five per cent off SocGen and so on.”

Looking at the daily chart of the Euro it is apparent that it has now slipped down below the 200 day moving average for the first time since November 2012. Our long held 1.2650ish target remains

In Other FX markets USDJPY broke our trendline making a low of 93.53 and we would now be short USDJPY targetting 93.05 then 90.73. But if you like Fibonacci levels the way that I do a “usual” retracement within an uptrend would see a move back to the 38.2% level which is 89.97.

The Aussie has been fairly stable over the past 24 hours, breaking up through last week’s high at 1.0457 and trading up to 1.0480 before pulling back a little with the Euro but it is still sitting at 1.0465 this morning and still targeting a push toward 1.05. The Pound was volatile overnight in line with the Euro trading up to 1.5267 with a low of 1.5141 and it sits at 1.5177 this morning.

Looking at the stock markets of Europe having opened up strongly slipped lower with the Italy and Spain hardest hit losing 2.50% and 2.26% respectively. France with its weak economy was knocked 1.12% while the DAX fell 0.51% and the FTSE was 0.23% lower. The Euro Group has already tried to hose down Disjsselbloem’s comments but the cat’s out of the bag, Pandora’s Box is open.

In the US stocks were off following the lead of Europe with the Dow Jones Industrials down 0.44%, the Nasdaq dropped 0.31% with the S&P down the same amount or 5 points to 1,552. These moves aren’t too bad and nothing too large but as you can see in the chart of the S&P 500 continually bumping into the top of its uptrend channel – the roofline as my son likes to call it – which continues to provide solid resistance.The rally is fading and a period of consolidation/pullback looks likely.

In commodity markets gold rally continues to fade and it has slipped back below $1,600 sitting at $1,596 at the moment. Crude oil rose 0.93% to $94.58 Bbl. Copper fell 0.49% and the Ags were mixed.

Data

RBA Governor Glenn Stevens speaks today with little else out before Durable Goods, Case Shiller house prices and the Richmond Fed manufacturing index out in the US tonight.

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