Eurozone inflation in March fell to only an annualized 0.5% rate
causing a lot of chatter about the ECB's meeting on Thursday, 4/3.
Much of the discussion has been focused on the IMF's Managing
Director's call to action for the ECB to do more to battle the low
growth in Europe.
Christine Lagarde truly believes that the world's central banks
control the fate of the economies in their hands as she boasts,
"the risk is that without sufficient policy ambition, the world
could fall into a medium-term low growth trap", but isn't that what
the World's been battling unsuccessfully for five years now?
Evidently now it's up to Europe's citizens to bail out the
world, and the world forever is never again to have a cyclical
business cycle (NYSEARCA:FEZ) ?
This all seems like a game of hot potato as each country
stimulates, kicks the business cycle can down the road, and then
hands off the stimulus responsibility to the next participant
(Japan, then U.S., then Europe), meanwhile declaring victory
prematurely as they rack up more and more debt and future
But at what point do we realize stimulus will never be bigger
than thy markets?
We truly are in unprecedented territory where Central Banks seem
to be the answer to every problem. In this case the IMF may
get their just desserts, but they likely will have buyer's
The Markets will ultimately be Right
Is the ECB about to start down a QE path similar to the one the
Federal Reserve Bank in the U.S. is now wrapping up?
The IMF sure thinks that should occur, and we are about to see
who really controls their citizens' money, their own politicians
voted in by the people, or a centrally planned and appointed
special interest group, like the IMF, that dictates how citizens'
taxes should be appropriated around the world?
(For more on Central Bank failures, see this article on how
the Central Bank's policies are not weakening the
Regardless what the ECB (or IMF) decides, the $5 Trillion daily
foreign exchange markets will ultimately have the last word,
deciding the fate of the Euro zone (NYSEARCA:CEE) whether the
central bank intervenes or not. The mere size of these
markets dictate just how little the central banks do actually
The market is the gorilla in the room no one is talking about,
and that gorilla tells us that the Euro (NYSEARCA:FXE) is already
in a weakening trend as the charts suggest this inflation could
pick up significantly, giving the IMF exactly what they wanted.
What the Market Says
The first chart below is a long term view of the Euro showing
that after strengthening from its initial launch in 1999 it has
indeed been weakening the last five years from its strongest point
reached back in 2008.
In the chart you can see the weakening over the last five years
as outlined by the blue declining trend channel.
The next chart is one recently provided via our Technical
Forecast showing why the Euro (NYSEARCA:EUO) may weaken
significantly from here as two technical resistance areas collide
near price at $1.3800.
These resistances, which thus far have done their job in
rejecting price, suggest the Euro's two year rally may be over and
prices may be kicking off a huge decline to sub $1.2000.
These areas of resistance so far have brought in sellers and
suggest the Euro may be rolling over.
I also provided the price level that would put the odds even more
in favor of shorting the Euro as well as trade setups for the
Dollar (NYSEARCA:UUP) and Yen (NYSEARCA:JYF).
If that price level is breached a high probability trading
opportunity would present itself in shorting the Euro and longing
The better thing about this trade setup is that we also will
know exactly when we are wrong.
If the Euro rallies above $1.4000 it would break out of this
pattern and indeed confirm the IMF's worst fears, a strengthening
Euro, likely the result of further deflationary forces.
If that occurs there is no doubt the ECB would be forced to
chase the market and initiate even more stimulus to attempt to
counter the forces.
What this all amounts to is a short Euro trade setup once our
confirmation price is breached, with risk of a few cents ($1.4000)
but profit potential over 15 cents (below $1.2000), resulting in
another high reward:low risk trade opportunity for our
For now, the Euro markets are telling us the ECB does not need
to stimulate as the charts suggest inflation is about to rear its
ugly head, significantly weakening the Euro over the coming
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