Draghi Moves Markets
December 7, 2015
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
The US dollar is rallying nicely following the release last Friday of the modestly stronger than- consensus increase in non-farm payrolls and following the apparent attempt by Mr. Draghi to bring the EUR back from its massive rally on Thursday following the “non-decision decision” by the ECB.
Concerning the latter first, it is now rather clear that Mr. Draghi believes that he erred… or that the market erred in interpreting his comments last Thursday… in his press conference following the ECB’s monetary policy council meeting. Thursday it certainly appeared that he had been trumped in the meeting in being question by the always inflation-reticent Germans on the Council in not expanding the QE operations that had been so widely expected. This was all the more certain when Mr. Weidmann, the Bundesbank’s President, made it clear later on Thursday that he was wholly opposed to even the modestly easier policy that had been put forth. Mr. Draghi had promised time and again and had led the markets to believe that the virtual monetary sky was the limit in the days up to the Council meeting and when the sky had been rather obviously lowered the European stock markets crashed and the EUR soared. Friday, having flown to the New York following his press conference Thursday, Mr. Draghi said that “There is no particular limit to how we can deploy any of our tools… [and] there is no doubt that if we had to intensify the use of our instruments to ensure we achieve or price stability mandate we would.”
Further, when asked by the Bank of England’s Mr. Mervyn King… the former Governor of the Bank until retiring a year or so ago… if the comments he made in New York were intended to “offset” the market’s reaction to his press conference the day previous, Mr. Draghi said, after a bit of hemming and hawing, that “Well, of course.” On that, the EUR gave up a goodly portion of its massive gains from Thursday and it continues to do so.
As for gold it finally appears to us that after four years of relentless bear markets that something material has happened with the market having forged a rare weekly reversal to the upside last week; that is, gold in US dollar terms made a new four year low mid-week last week and by the week’s end had taken out and closed above the previous week’s high. This is a classic “Reversal” and it came amidst the news that “spec” longs had been all but eliminated and as “commercial” shorts were at their smallest level in years. Further, gold’s strength was all the more impressive in that it developed even as crude oil prices were falling… sharply… a circumstance we found really quite interesting.