Despite riots on the streets of Greece and elsewhere, Europhiles everywhere found the very idea of the embattled ECB swaping coming-due Greek bonds for longer dated ones so attractive that we ended the week well above that key 1.30 number. The weekly candle was a hammer, so let’s not expect our crash to come so soon, but come it will as when we strip this whole affair down to the bare bones, nothing has changed.

If anything, things are getting worse. Sarkozy doesn’t look like he will survive the coming elections, leaving France with a far more left wing President, thus substantially weakening Merkel’s position. Remember, she has also just lost one of her closest domestic political allies in hand-picked president Christian Wulff, who resigned amid a scandal. French and German taxpayers are annoyed, very annoyed at the constant bailing out of their neighbours, and rightly so.

A class full of C-average high school economics students could tell you that this is a house of cards ready to collapse. Like the Madoff ponzi scheme, nothing lasts forever. Alas, Mr Madoff did not have a printing press in the Lipstick building.

In short, the Euro is putting up the fight of its life to defend 1.30, because the ECB knows that freefall will ensue should we see a convincing breach. Even the Euro “doom and gloom” brigade here at www.faholofx.com have been somewhat conservative in their down-calls to 1.25 medium term. Some analysts are looking at 1.18 and many even as low as parity. However, we still call 1.25.

The economic and political map is changing significantly. We are looking at the NASDAQ and Oil primarily for USX action. The situation in Syria goes from bad to worse, whilst Iran continues to irritate the US and European equity markets, which in our view, are overvalued.

Even Gold seems less preferable to the greenback at present and we maintain that the USA is in a far, far stronger position to fight back than the much less ‘united’ Eurozone member states.

Once the slide begins, we should also see some improvement in USD against the Aussie and the Loonie. These are very cautious times, and one where the traders with the patience and lack of emotion should win out.

One further point. Compared to just a few years ago when Euro-mania was rife within some mainstream UK political factions, all major political parties in the are stating catagorically that Britain will not join the Euro within our lifetimes.

UK readers will be familiar with the expression, “slowly, slowly, catch the monkey”. That’s our view, certainly for the weeks ahead.

As always, Faholo clients will be given constant updates on the positions we are taking, why we are taking them, and when we will be taking profit.

Basically Leeson made a few, initially small trading mistakes which got out of control and culminated in the multi-billion pound collapse of one of Britian’s oldest and most respected financial institutions.  At his lowest point and with losses spiralling out of control, it was all Nick could do to try to artificially prop up a bear market by buying equities in huge quantities. “Never fight the market, Nick”, said one of his wiser colleagues in the pit.

One can only assume that the ECB’s Jean-Claude Trichet must be an avid fan of Mr Leeson’s business model. For this is precisely what the central bank is doing, albeit on a scale that makes Leeson’s losses look like lunch money.

Yes, that’s right the boys and girls at the ECB have been very busy indeed in the markets today. Buying up Spanish and French paper in great quantities (shhhhh, you’re not supposed to know) in a desperate bid to prop up the single currency. It may succeed for a few hours, but this $4T a day market is so liquid that not even JCT can shift it for any meaningful length of time. Now watch and wait, my friends. I suspect it will only be a matter of time before these cowards introduce a fixed ceiling on bond yields. That dedicated Europhile, George Soros is already calling for it. Anything to save their European dream.

Bring it on. Just more opportunities for us to short more of this junk.

Disclosure:  FaholoFX has short positions in the EURUSD foreign exchange market.

But is it acceptable to put so much focus, and hence pressure, on Germany alone? The Country was standing shoulder to shoulder with France as the problems with the PIGS pitched to its most recent crescendo, but since that rather disappointing French debt auction coupled with a few rating agency downgrade treats, France is no longer the rock it had been seen to be throughout the majority of this crisis. Put simply, guys if I was a German taxpayer, I’d be pretty peeved by now at having to constantly prop up my irresponsible siblings.

The end of the Euro will never happen, but surely if there is one thing that global and economic leaders must now recognize that there should be nothing, be it corporate or sovereign, that should be deemed to be “too big to fail”.

By comparison, most US data was optimistic and augments my upbeat feelings towards the Greenback. The data will, I suspect once again prove to be the market’s master this week, but just remember; the Euro Zone still has everything to fear, and very little to be upbeat about.

So has George taken leave of his senses? Or is this a very clever PM sticking two fingers up to France and Germany and adopting a devil-may-care attitude to his nation’s place within club Euro? Only time will tell, but if Greece does default and go bankrupt, the ramifications for the Euro Zone will be widely felt. Greece has acted like a teenager with his first credit card, spending money like it’s going out of fashion with little or no intent of ever paying it back. If I were a German or French taxpayer I’d be pretty annoyed right now!

The World must finally learn the lessons of recent history. NOTHING should be too big to fail. We allow this to go on and Greece will be just the start of a global spiral where default is the norm and the responsible have to wipe the backsides of irresponsible.

Often asked about my trading style, my usual response is quite simple. I do not believe, nor have I ever, that there is such a thing as a ‘purely’ technical trader. The news always plays a part. Be it something as core as NFP, right through to analysing every word of a Merkel speech, I defy any trader to tell me that the news wires have zero influence on their decisions. Of course they do. It’s merely a question of the degree to which we allow global events to impact our bottom line.

So when is news really news? Often a few meaningless rambles from a drunken finance minister can shift a pair 100+ pips, before sanity returns. Last weekend and this week we have heard quite a lot of baseless nonsense coming out of the Eurozone. Alas, talk is cheap. When I heard Merkel’s speech on the rescue fund, my eyelids were closing. Not since the eve of the First World War, when the then foreign secretary, Sir Edward Grey, noted that “lamps are going out all over Europe” had there been such an extinguishment of positive energy. Yet, the Euro reacted well. Work that one out.

The key here is to cut the wheat from the chaff. I do not believe a word that comes out of a politician, bureaucrat or rating agency’s mouth, AND NOR SHOULD YOU.

Hard data. Crunching the numbers, getting into the components. That’s what matters, and as traders we forget that at our peril.

In short, check the data out. The Eurozone is up the creek without a paddle, and no lyrical waxing from Merkel, Van Rompuy or any of the rest of them can alter that hard fact.

Anyway, I’m off to get the “meaning of dreams” book out to see if there is a chapter entitled “So you had a fight with President of the European Council…”

The news that Col. Qaddafi has been killed should matter little to global markets. Politically, he was already gone. Hopefully though, this will quell the ambitions of the rebels and serve to put a stop to their violence.

Alas, one cannot be overly hopeful. When will the West learn that these fights are seldom the quick and easy tasks that our governments sell them as? From the “Mission Accomplished” Iraq fiasco to the assertion that the Libya conflict would be over “in a few days”. Time and time again they screw it up and plunge the World, and global markets, into unhealthy uncertainty and volatility.

If there is one thing that recent history should teach us is that war, regime change, liberation (or whatever you want to call it) should never be embarked upon lightly. The worst should always be assumed and prepared for.

There are still many dangerous states out there, North Korea, Iraq, Syria to name but a few. Who will be next to feel the full force of the Western fist? Whoever it is, we must accept that modern warfare has changed and made our jobs (as traders) more fundamentally dangerous than ever.

Geopolitical knowledge is an essential weapon in the traders’ arsenal.
–
David Potts is a trader at faholofx.com and a UK elected politician.

In 2009 the Greeks paid an average of €1,355 in bribes for public services such as speeding up the issue of driver’s licenses and construction permits, getting admitted to public hospitals or manipulating tax returns, according to a new study by Transparency International, the Berlin-based global corruption watchdog.

Bribes paid for private sector services such as lawyers, doctors or banks were even higher, rising to €1,671 on average in 2009 from €1,575 in 2008, the study said. It is based on a survey by polling institute Public Issue among 6,122 Greek adults, of whom 13.4 percent stated that they had been asked to pay bribes.

France and Germany can say what they like about fiscal and monetary measures. I’m sorry folks, without a deep rooting out of corruption, the Greek economy has little chance of survival unless it continues to be propped up on the EU life-support machine.

Disclosure:  David and/or others at FaholoFX are currently holding short positions in EURUSD.