Is All Lost For The Euro?
December 19, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
We are still quite strongly bullish of the US dollar and although the exporters here in the US will of course wail and gnash their collective teeth as the dollar rises stating openly and often that they cannot compete effectively with foreign manufacturers, the harsh reality is that they shall have no choice but to learn how to compete. Again, we recall how the Japanese exporters decried the inexorable rise of the Yen in the 70’s and 80’s as the Yen/dollar moved from above 350 to an eventual 50, but they learned how to become more and more efficient or they went bankrupt. This was harsh medicine then to the Japanese exporters, and the rising dollar is harsh medicine now to the US exporters but just as the Japanese learned how to compete, so too shall the US exporters. They have no choice.
The trend line of the EUR vs. the US dollar going back several years has been broken through to the downside. This we think is material and if the recent nearly two year long “consolidation” pattern that has evolved since early ’15 proves to be a mid-point it argues for the EUR to make its way eventually toward 0.8000! Some may think this preposterous; we fear it is quite possible instead as the political situation in Europe devolves next year with election, after election after contested election taking place.
But all is not utterly lost in Europe for there is some good news from the most recent French Purchasing Manager’s Report which has now moved higher for six of the last seven months and is nicely above the all-important 50 level. At 53.5 it is well above the expected 51.9 level and nicely above the previous month’s 51.7
Regarding gold, the bearishness surrounding this market is so overwhelming… so amazingly one-sided… that some material bounce is long overdue and is taking place as we write, with spot gold back above $1140/oz. and importantly is back above €1090/oz. A trend line drawn across the tops of the 4 hour chart for gold/EUR going back into early November remains firmly intact, but will be broken through should gold/EUR trade upward through €1095. That shall require either that spot/dollar gold trades upward through $1145 or that the EUR falls back down through 1.0410 or so. Should both happen, that is should the EUR weaken and should dollar/gold strengthen, then we’d quickly see gold/EUR trading through the psychologically… and technically… important €1100/oz. level. Certainly we hope that that shall happen sooner rather than later as the European monetary authorities err in favor of continued monetary expansion while the US monetary authorities err on the side of monetary contraction.
What is also interesting was how gold responded to the China/US “drone” affair on Friday. Gold obviously spiked quickly higher on the first news regarding China’s taking of the US underwater drone in question, but that spike was met by massive selling on the COMEX. As our friend, John Brimelow noted, this selling appears to have been from a standing order at $1140 that turned gold back quickly from that level. It is important therefore to note that spot gold had traded through that level this morning, suggesting that that seller has been sated… at least for the time being.