spotfxtrader

Ha ha. The recent rally appears to have fizzled, as the imminnent collapse of the Irish banking system threatens to bring down the entire euro project, and hopefully with it the “proto Fascist” EU,  as it was described by Ambrose Evans-Pritchard in a recent post in the London Telegraph. An Irish bailout would increase the pressure on Portugal, Spain and Italy in that order, with the final act potentially including France, as the entire European banking system collapses under the weight of this extreme indebtedness. As Evans-Pritchard writes “Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them”.  An apt analogy. And while I’m quoting from another source I would add this, on the decision to discuss the imposition of haircuts and the subsequent backpeddling : “This is a breath-taking mixture of suicidal irresponsibility and farcical incoherence,” – Marco Annunziata from Unicredit.  This whole episode is symptomatic of the incompetence of the politicians and examples such as this are rarely laid so bare by the consequences being made apparent with such immediacy. The normal pattern is for their responsibility for the unintended consequences of their actions to be adeptly concealed with deceit. But I digress.

Further to our post of 1st November discussing the decision to impose haircuts on bond holders and by implication the higher interest rates across the eurozone that logically result from this, an act which by its very nature is inherently deflationary, we can now see that any euro rally that results from the shedding of the PIGS will occur from much lower levels. Hence the current weakness. Effectively, as long as the euro contains the dross of southern Europe it will never mimic the Deutschmark, as it was supposed to and as the Germans would have liked. Indeed their management of it as though it were, it could be argued, has contributed to its woes.

Anyway there is a degree of incomprehensibility to the gyrations caused by the politics. We’ll try in future to stick to technicals.