Pages Menu

Posted by on Sep 16, 2016 in Market Insight

The Euro & The Three Tops

The Euro & The Three Tops

September 6, 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.

For we now see one topping pattern for the EUR after another and after another. One Head and Shoulder’s top is now developing over the course of the past seven months; another has developed over the three months from April through June and a newer, shorter term but almost equally important top has developed over the course of the past month. Each adds validity to the other, and each makes the EUR-bearish case all the more embraceable and certain.

Beyond the technical damage to the EUR is the political news out of Germany… commented on at some greater length below in our usual political discussion… in the “lander” election in Mecklenburg-Western

Pomerania where Ms. Merkel’s Christian Democrats finished in a very poor third place with 19.8% of the votes cast. The CDU finished behind the AfD…the Alternative fur Deutschland… in 2nd place with 21.4% of the votes and the Social Democrats in 1st place with 30.2% of the votes cast.

Further, late on Friday, the Spanish parliament voted once again by what we believe to have been the same numbers that it had voted twice previously last week against allowing Mr. Rajoy and his People’s Party to form a majority government through coalition. Spain has suffered badly over the course of the past several years, and that is made amply clear by the fact that the Spanish unemployment rate has remained steadfastly 10-15 “points” higher than the average of other members of the European Union, having touched 26.1% at its peak back in 2013 and moving only marginally lower since. It appears that Spain is headed then for its third national election this year alone, and we have doubts that that election shall resolve the question of government. Spain’s confusion, coupled now with Germany’s, shall… or at least should… weigh upon the EUR. It seems only reasonable.

Concerning Japan, now that the G20 meeting is out of the way… having ended as all such meetings end, with photo-ops and promises of cooperation on all fronts but with no new material initiatives announced, and quite honestly we are grateful for any lack of new initiatives for we prefer gridlock to collectivist thinking at every turn; but that is another story for another time… the Governor of the Bank of Japan, Mr. Kuroda, said that there shall not be any reduction in the level of “policy accommodation” at the September 20-21 BOJ policy committee meeting. Indeed there had been some calling for precisely that, and Mr. Kuroda has made it perfectly clear that that shall not happen.

Further he made it clear that nothing in the way of new initiatives needed to ignite an inflation and to end the deflation that has ravaged the Japanese economy over the course of the past decade at least shall be ruled out. In his own words… in English obviously… he said There is ample room for further monetary easing in either of three dimensions — quantity, quality, and the interest rate – and other new ideas should not be off the table. We shall take him at his word.

Turning to gold, we are convinced that the political circumstances prevailing in Europe are more and more confusing and as always, confusion breeds contempt for nearly all financial assets save gold. Indeed, under most instances, confusion breeds delight in gold instead. With Spain failing to put a government into place late on Friday and with the increasing support for the anti-government AfD in the German “lander” election in Mecklenburg-West Pomerania, the barometer of political confusion argues for “ill weather” ahead and thus to gold’s benefit.

Now, if only the long absent Indians would return to the gold market in some size, we’d be all the more cheerful.

The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.