17 July 2010


What I have been suggesting is an instrument on and of itself has been created to manage money flow into assets (e.g. stocks). Keeping Fed funds near zero, keeping ECB rates low but above Fed funds does indeed create a conduit for money flow, by virtue as well of the fact this interfaces with US equities.

The problem is this conduit is unstable and seems to be veering into territory normally associated with stellar physics. The hint of a raise in Fed fund rates a few months ago triggered the collapse of EUR and the money flowed out of supported assets.

EUR went as low as it could, the point about this collapse is it breached territory associated with what might be called its true valuation aside from political considerations. It had to bounce, because there were no major fundamental which the system had not digested but from a long term view, the fact it went so low interested me.

I am reading the monthly chart thus I wonder whether that spike down is a valuation probe, suggesting EUR is seeking a true value. But because it is a monthly chart that would take time to play out.

But other considerations rule, and never has EUR found its true value for long. What do I mean by true value. Well what is EUR, it is a political invention which rose on the back of a US and euro zone housing bubble and debt splurges. The wealth of Europe has been revealed to be clouded by massive amounts of debt.

But debt economics still rule despite the crisis. Any calmness in the debt shocks is greeted by a rise in EUR because it suggests business as usual. Namely the crisis is simply an event which is over and the printing presses will keep on rolling.

Basically EUR does not have an identity to fundamentally value it, so it sinks into an identity of a kind of anti-dollar, where the US finds new ways to inflate and add to its debt mountain. This is happening because the US and only the US can do this a kind of gravity well in and of itself.

Look at EUR/USD 1 month. What is that patterns playing out. Again it is my comments about patterns are only obvious after the event. Could that be a flag or a double bottom, the problem is the trend is unclear and 1 month is heavily influenced by large structure fundmanentals. Why beat yourself up on 5 or 15 minute chart pattern choices. But fundamental analysis can give you some support in your choice (large or fine scale). BTW when you trade EUR/USD and stocks you trade the instrument created to manage money flows.

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