"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, November 6, 2014

Euro Falls on ECB Stimulus Plan

The Euro went one way ( down ) and stocks went the other ( up ) when comments from ECB President Draghi hit the wire this morning.

What caught the attention of the Forex crowd, and the equity guys, was the indication that the Central Bank's program of buying asset-backed securities would last for two years. That news was not in the markets.

Traders are interpreting it a evidence that the ECB is taking a more concerted stance at staving off the deflationary issues currently afflicting the Eurozone.

Here is a chart of the Euro.

The common currency has fallen through a temporary support zone that had formed near the 1.250 region. Depending on its subsequent price action for the remainder of the week, it appears headed for a test of 1.2250 zone.

Here is one of the Dollar as a result:

From a technical analysis perspective, the Dollar remains on a relatively unhindered path for a test of its June 2010 high near the 89 level basis the USDX.

As usual, strength in the Dollar is weighing on gold this morning. I noticed that it had briefly popped its head into positive territory early in the session this morning but once the Draghi comments hit the wire, it sank lower. Traders see these various efforts by the Central Banks as evidence of deflationary pressure which is tending to reinforce the "there is no inflation" theme, especially as they see weaker crude oil prices. Still, the metal has been able to pull away from its worst session low which occurred overnight. A fair amount of that selling in the overnight session looks to me to be margin related.

A brief comment on USDA grain export numbers this AM. Beans were strong once again but cancellations did indeed show up in the meal. Once again it was China that was the big buyer of US beans which continues to surprise me given the ongoing state of the US harvest and the cost differential between US origin beans and S. American origin beans.

I should note however that a total of 651,000 metric tons were cancelled from "Unknown". Speculation will be rife as to whom that was and whether or it is the tip of the iceberg. That has caught my attention.

On the meal side, a total of 306,800 metric tons of meal sales were cancelled this week. That is rather significant. There were sales of 183,300 metric tons so the NET RESULT was the cancellation of 123,700 metric tons of meal sales. If the idea was to ration meal until the pipeline was able to be replenished, it is certainly working.


  1. ThanksDan, I just asked in the last thread what the heck was going on in the EUR this a.m.

    Looks like 1.24 is an important resistance level in the EUR these days. I didn't see any notable market reaction from the EURUSD drop just yet but I'm thinking the 10:00 a.m. EST London gold fix might shake things up....or down.

  2. I see the gold/silver shortage and GOFO meme is getting frothy again.

    If GOFO didn't matter one iota when the metals were higher (and have since plummeted) why would it matter now that they're both laying there in a coma?
    What does GOFO really indicate when it's touted out there? Nothing of any real measurable consequence would be my answer.

    What's next? A KWB/Maguire "empty vaults" or "insatiable Asian demand" spiel or a "this can't go on forever" assertion born of frustration?

    1. 1. I don't know interest rates well-but Low GOFO rates seem to correlate w/ 0% central bank rates since 2008-9 (this from eyeballing the ZH article)
      2. Also from looking at the chart provided by ZH, there doesn't seem to be an easily discernible correlation between price of gold & GOFO.
      3. From ZH chart, lowest GOFO rates are an order of magnitude lower than they are now.

      The nice thing about ZH writers is they always provide the data / charts to refute their own headlines.

  3. Industrial data in the US improving from the temporary strong dollar. As German exports did when the Euro went from .85 to 1.45

  4. USD about to breach 88 while the EUR barely broke down through 1.24

    So much for the dollar collapse and PM price skyrocket that was the central theme for most of the fear-mongering "collapse" scenario's touted these past several years.

    The only thing really collapsing is the credibility of the perma-bottom callers. In retrospect, the "vision" that many of the experts pummeled their herds with was in fact a lack of foresight that never took into account the LIKELIHOOD that the USD was far from being kaput.

    1. This is why the idea of money printing never EVER gets fully discredited throughout history. Because it lasts long enough for people to believe in it and long enough for other events to come along the blame the inevitable crash on. 1920 wasn't quite long enough for the Germans to forget yet as we can see them pressuring Draghi against QE. But the longer it keeps working in the US, the more ppl will start to forget about the 20's in Germany.

      And with the Middle East and Putin around, there will be plenty of things to blame it on after everyone is convinced that it works.

      Peacetime Keynesiansim to wartime Keynesiansm. Rinse, repeat.

      The worst people are the ones who should know better but do the Keynesian bidding anyway.

    2. Speaking of wartime Keynesian...a shot across Putin's bow...and when push becomes a shove...
      "Kremlin says U.S. probe of Putin ally is attack on president"

      By Alexei Anishchuk
      Thu Nov 6, 2014 1:04pm EST

      MOSCOW (Reuters) - The Kremlin accused the United States on Thursday of firing a broadside against President Vladimir Putin by opening a money-laundering investigation into a member of his inner circle.

      The probe into Gennady Timchenko, a co-founder of the Gunvor trading house who is also under sanctions over the crisis in Ukraine, is likely to increase tension between Moscow and the West in their worst standoff since the Cold War.

      Dmitry Peskov, Putin's press secretary, told reporters the Kremlin knew no details of the case "and we cannot express anything but bewilderment."

      "What is happening in the various 'sanction actions' is hard to explain and very often is aimed directly against Putin," he said. "This is yet another example of this - though I don't know how reliable the information is - this theme when the attacks on Russia focus on the leader of the country, Putin himself." (cont.)


    3. There is NOT one thing that is comparable between Weimar Republic and what the US is doing today. AGAIN, get educated. QE is not money printing, it is merely a mechansim to control rates at the higher end of the maturity curve.

    4. Germany bought forex with printed marks which eventually flooded the forex market with marks.

      The U.S. is buying oil and merchandise with printed money that forign central banks are holding as reserves. When a forign central bank goes to spend those reserves to help their currency , dollars will flood the forex markets. So it amounts to the same thing.

      Btw I said some people know better. evidnetly not all people

    5. is QE money printing? it depends who you ask. economics isn't a hard science, it is all theory. but QE does increase the FEDS balance sheet, though assets and liabilities cancel out by definition... but one side of the FEDS balance sheet IS created out of nothing. so i am just as confused as the next guy, yet i do think something stinks here. :-)

    6. Peck

      yes QE is balance sheet expansion.

      It wasn't actual money printing that caused the HI in Germany either.

    7. I've been mostly a lurker on Dan's excellent blog, but I really want to understand this, so I've gotta ask the question: How is QE not money printing?

      My rudimentary and probably incorrect understanding is that, on POMO days, the primary dealers would bid on treasuries using a the same system used for other treasury auctions. So let's say they buy $X billion worth of treasuries. So they give $X to the U.S. Treasury which will spend the money on government expenses. Then the primary dealers flip the treasuries to the Federal Reserve which buys them from the primary dealers with a new $X that is fabricated to exist for that purchase. The Fed ends up with treasuries on its balance sheet and the primary dealers now have the newly-fabricated $X to use.

      So we started with $X in the possession of the primary dealers.
      However, we end up with that original $X being spent by the U.S. government and the newly-fabricated $X from the Fed is in the hands of the primary dealers to do with as they please.

      So we started with $X and end up with $2X.

      What am I missing?

  5. Hi all,

    A little chart of Eur Usd.


    What is interesting is that we are crossing through the inf bollinger band of the monthly time unit. This bollinger band was a succesful support several times before, and this is only the beginning of the month.
    But on the weekly candlechart you can see here, the bollinger bands are both headed downwards, showing the trend, and the macd missed to cross, which usually is very bearish.
    So...in this configuration, where the inf bollinger band weekly time unit is already below the inf bollinger band of the monthly time unit (I represent both on the chart, with 20 and 100 period bollinger), I'm watching the ET MACD. It's going up, but usually when it reverses back down, the inf bollinger band is likely to reverse up as well, within 3-4 candles.
    Ok maybe I'm much too technical here... let's say that for now, the ETMACD is still going up, so the Eur Usd can easily go and try to test 1.2220.
    I guess the inf bol band monthly time unit will attrack prices back up towards it before month end, but I'm not sure at all.
    My target is to sell 1/3 of my short position on eur usd if we reach the 1.2220 area approximately.

    1. P.S : on a larger point of view, if Eur Usd breaks through 1.20, then it will be scary. It will mean that, yes, the peripheral fiat currencies collapse first (Turkey, Venezuela, Ruble, etc...), then the collapse keeps going on, closing towards the core of the system (Euro, Yen).
      While this is happening, it probably provides a support to the dollar, but is it the sign of dollar strength and a nice US economy, or is it the sign of a Tsunami coming for the USdollar?
      When everyone will be on the last remaining fiat currency boat, the dollar, what happens if, too, people lose confidence in this currency?

      I'm happy I have some physical gold in this circumstance, no matter what prices will be.

    2. Thanks HDH...I'm watching the EURUSD with interest today.

      "When everyone will be on the last remaining fiat currency boat, the dollar, what happens if, too, people lose confidence in this currency?"

      But what if the USD remains the primary currency (as it is now) and only a couple of other currencies (Yuan/Pound....or German Mark after the EMU splinters apart?) manage to come in a distant second and third choice.

      I like your thoughts on how the periphreal currencies are likely to be effected and the (dis)order in which it occurs.

    3. From Nov 11 to Jan 12 EUR AUD and NZD in bullish cycles. So here the scenario I think. EUR will be down fast to 1.2-1.1 and establish a bottom next week. Then rally a bit with SP for year end. Then going down beyond Jan. Gold will touch 900$ soon and moving sideway in a range from 900 to 1200 for next year. USD strong but gold will not be down much. SP will moving in correlation with USD and gold as well. EUR could go to 1 next year. I need to find the best par for reversed QE. With original QE, EURAUD the best to short. Could be long GBP/JPY this time ?

  6. gold hugging that 1140 number like gravity. If the numbers tomorrow look like anything expected, 1120 will be hit by late morning. No lift here. It is hard for a gold bull to be alive right now.

    gold is the most expensive insurance policy ever underwritten. The USD just bulldozes ahead. All that domestic oil supply laying that "petrodollar" garbage and dollar collapse talk to waste.

    The dollar will be the last man standing. I do not think people realize how high the USDX can rise over the next year. The catalyst is a slow grind that will be very difficult to reverse, barring a nuclear takeout of the US and Washington DC. And that won't happen until next decade.

    It could take easily take out the 92+ from 2005 in a blowoff top. The other economies are just continuing to fall apart.

  7. Since the end of August we have Gold down around 12.5% the GLD:GDX ratio has had Gold stocks down almost 50% relative to Gold one could say over sold in a major way. There are signs of a turn in the GLD:GDX worth watching.

    1. @Rim:
      It looked like a lot of the bounce in GDX was not too impressive seeing as many of the components ended well off their highs. That said--good turn around in the long dated calls (Jan 2016 & out). Yup - worth watching to see if the 11 year support level holds up or not while gold continues to find its level.

      On the bright side - Kinross put out some very respectable earnings this quarter - costs way down - so probably helped buoy the HUI a bit in addition to the dead cat bounce.

    2. …and speaking of miners, TRX managed to only bounce up .01. To me, the better performance / bounce by the 'blue chip' (holding my nose) miners relative to the juniors is a potentially welcome sign - that perhaps some value investors / bottom fishers are stepping in where there is value to be had versus, not so much with the explorers - pimped up gravel pits (although gravel pits are a helluva business).

  8. GOLD.

    We may be close to a short term bounce (1125 next week - 1130 this week).


    But longer-term, it is ugly on the weekly time scale : both CDUR are going down, and the MACD also missed crossing (bearish) :(

    So, on the daily time scale, Cdur is very low and might encourage a short-term upwards reaction...especially if we hit the red line shown on the chart. This line did allow prices to reverse direction just on it several times before. 1130 this week, 1125 next week.
    Good luck :)

    1. P.S : I'll get rid of 1/3 of my short position on gold if we hit the 1125-1130 area. Maybe 50% if I have a chance to be there and see a confirmation of a bounce on the shorter time units, but I guess I won't.

  9. Thank Dan.You enlighten me about USD bullishness. My account increased 50%. Looking for 200% at EOY. I know your blog 3-4 years ago but I did not understand a word you said at this time lol. Your Ecclesiastes keep me coming back then

    1. "Your Ecclesiastes keep me coming back then"
      So everything is useful on this blog.

  10. harvest moon today! corn bulls didn't have much on the low export sales,strong USDX, and strong harvest weather.

    chicago wheat finally followed the KC-MN as we are just uncompetitive in the world market.

    Chicago soybean futures closed higher on Thursday, although down from the highs earlier in the session, as exporters need soymeal to meet shipping commitments.

    Soymeal futures were up more than $20 a ton at one point, or 5%, in reaction to exporters needing supplies. Despite the advancing soybean harvest, the talk is soybean sales to processors have not been enough to meet the needs of shippers.

    it just looks like the same squeezers saw some sellers on that meal cancellation that Dan wrote above, squeeze on!

    eur/usd technicians are now talking the 200 month SMA...
    gold has it's 200msma at 770 interesting. gold the midpoint of 255-1923 is at 1089.
    silver it was 4 for so many years, how bout .786 of 4 to 49 would be in 13's

    the trend is your friend is even more so at the end of they year as traders/managers protect their bonuses.

    in 1985 the USDX was about 145, that's when the usd/jpy was 'mooned' making the current 115.17 nothing if it really wants to go!


  11. I was watching the last 15 minutes of trading in GDXJ and there was a lot of selling going into the close. Every once in a while I'd see a sell order for over 200,000 which is out of place (normally 500 - 1500). It was up well over 6%, then lost half that in a very short amount of time going into the close. I suspect this doesn't bode well for the metals tomorrow.

    1. imho bulls don't want to see the red support line at 1130 (1125 next week) break...there was a line like this for Eur Usd when we started to head downwards...when we broke it, prices accelerated down.
      So I'd expect an even stronger and faster move downwards if we break and close under this line on a weekly basis :(

    2. @TheGillion - see my post above - I think the GDX bettering the GDXJ might be a healthy sign.

  12. SP500.

    Well, we are getting near the 2040-2050 area.
    I'll watch this area and probably short SP500 once more lol :)
    This is where I expect it to correct.
    Now if we really close above 2050, I'll give up and let the SP500 levitate towards whatever level it wants and probably won't short anymore before 2180 :) :)
    But I think there is some chance that SP500 stops right here at 2040.
    Let's see :)

  13. Sorry, for EUR USD, I forgot this nice support blue line here.
    It is at 1.2375, so we are exactly there now and maybe it will hold.


  14. Well, we had our golden bounce, all of $2. Pretty exciting, eh, and fills me with confidence - that is to say confidence that gold will fall substantially tomorrow. The gold shares were wonderful and racing to the moon, and we were invested heavily in JNUG, but a little birdie tweeting outside the window told me to sell JNUG an hour before the close and tuck in to JDST, which was done big time. It all unfolded beautifully. Not often one gets a day like this!

    1. This comment has been removed by a blog administrator.

  15. SPDR gold holdings decline 0.4% to 732.83 metric tons.
    as Dan mentioned it's back to 2008 levels.

    The gold-silver ratio has ended the session flat, consolidating around Wednesday’s new multi-year high. Near term support is
    expected at 74.00, followed by 72.50, and we note that technicals remain broadly suggestive of further upside.

    mrci gives a free sell march wheat trade out:


  16. OK, so I'm just getting rid of 50% of my short position on Eur Usd.
    It is the right time imho, the MACD 1 hour is low and reversing up...I should monitor, but it's time to go to bed, so I'm taking my profit, and that's it.
    I keep the remaining 50% for a target towards 1.2220 or 1.20.
    Good night,

  17. I dont know who said it buy I am sure it was here.

    "When gold approaches zero, then goldbugs will rejoice that the pain is over" LOL

    1. For entertainment purposes only.
      Extra strength Kool-Aid...

      The rebuttal comment under it nails it.

  18. Latest on King World News:
    "I expect Au:Ag to easily fall back to 20:1."
    -Ratio has only been below 40:1 for 4 months 3/11-6/11 (sporadically) in the last 20 years, so under 1 1/2% of the time during that period.
    -Ratio only hit 30 for 1 or two days in April 2011.
    -Infinitives split.

  19. Over in Glorious Putinland the Ruble depreciation is obviously stating to bite and they are getting desperate......

    According to APA:
    The State Duma has submitted a relevant bill banning and terminating the holding and circulation of USD currency within Russia.


    If true then its probably time to go short rather heavily on the Ruble....

  20. Try buying RUSS which is an Inverse ETF 3 times the RSX. I have done very well with this baby.

    1. PD...thanks for the info. on that.

    2. Good luck with it. It often moves up 5%, sometimes 10% in a day. Today it moved 12% with the news out of Russia. If the news is bad, or Putin is up to something it's a pretty sure bet. Often if the U.S. markets are falling it goes up; and vice-versa.

  21. @TraderDan

    Why no love for the HUI today? Solid reversal. How much more for a confirmation do you think?

    1. The HUI is down 37% almost in a straight line since the start of August and you're calling a meager 3% bounce a 'Solid Reversal'???

    2. @Willydog - See Trader Dan's Monthly Gold Chart for where support lies below 1180: 1155, 1088, 891

      No strong line support close by + dollar is still trending up . IMO those need to be weighed against HUI's bounce off support around 150 + the risk appetite in the markets now.

      Interestingly, the HUI could stay essentially flat around 150 and gold could drop to 1050 (Goldman's target / 50% retrace) and you'd be at a HUI:Gold ratio of .142, which is about where the bottom was in fall 2000. So there's a possibility that the HUI bottoms before gold, possible but not probable.

    3. willydog;

      no reversal in the HUI today... some buying but I cannot confirm even a temporary bottom until the index were to close above 165. Then you might have a temporary bottom and perhaps start some consolidative type trade for a season. The subsequent economic data we get will determine how much more strength the Dollar experiences and that will hold the future for gold.

  22. Reading some of the bullish posts on the US dollar here you wonder what dream world some live in?

    People forget the US dollar is saddled with 18 trillion dollars in national debt and its rising always. Japan is in the same boat.

    Just try doing the math on interest rates rising on that debt and financing it?

    How much interest has to be paid on each 1% rise in rates?

    This is a one way near 0% interest rate trip now, unless somehow that national debt can be inflated away.

    But does not look good for inflation as Dan's charts clearly show deflation taking hold as the Feds QE ends.

    1. Barney, all countries are in the same boat as regards debt, but the U.S. economy has a better economy than the others relatively speaking, so for the time being the U.S. dollar is the safe haven go-to currency. But I agree with you about the future, and one has to wonder how long this charade can continue.

    2. I agree Peter, the US dollar is the best option of the currencies and economies that would be bankrupted if interest rates were ever normalized.

      That a good word you use for it too Peter, "charade"

      If the Fed told you to do the above math then the "charade" ends.

  23. Down she goes...Just after midnight EST, gold down over $8 and silver down $0.35.

  24. A $14 handle in silver about to happen :-o

  25. It appears that someone bought the dip. I guess maybe it was profit taking from being short or someone thought $1130 gold and $15.00 silver was a good price. I don't know about gold, but at some point silver has to bottom out. It has a large use in industry similar to copper, but copper isn't dropping like silver is.

    1. The copper mkt is orders of magnitude what the silver mkt is, and price is much more heavily defended by huge financial interests. The parallels only go so far. The size of the silver mkt is a global rounding error.

  26. Draghi has done a good job of jawboning the Euro down with not allot of "action" as of yet. This was a reference to an interesting article last Tuesday suggesting not all Euro bankers (Germany?) may be on board...



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