Good News For the Euro

The Entry Points

Trader Scott

The Euro has had a succession of “bullish news” stories. First it was the dovishness on the part of the Fed. Then it was the loss by wildman Geert Wilders in the Dutch elections. And now it’s this story, about the possibility for the ECB to increase rates. Whatever happened to negative rates to infinity? And how about all of the GURUS talking about QE to infinity? In this post from December 2016, our own view was, bucking consensus, about the likelihood of an ECB rate increase:

“Yes,the chinks in the US$ dominance are adding up, but that is down the road. We have to get thru this period first. The $ itself needs to set up technically. Its strength will be its demise. The major top in the $ will probably be around a lot of fanfare about the euro project failing, Merkel losing, Fed stepping up its rate increases, etc. But what I’m beginning to get interested in is the possibility of the ECB beginning to hint at raising rates.”

OK, so we were 3 months early, but our belief has been since December, even with the obsession by almost everyone with negative rates, that the ECB’s next big move would be not more QE, but a RATE INCREASE. And we have factored that potential into our overall plan. So today the rumors are now getting more intense about the ECB raising rates, and next about the BOJ. So for everyone who extrapolated – to repeat, markets are dynamic, not static, anyone sitting around predicting crap with a static viewpoint, which is exactly what predicting is, will never succeed in markets. Meaning all of the diehard extrapolators. We have to always consider the other possibilities and be flexible with our plans. We are still very bullish on the $ overall, but in the video over the weekend, was the explanation why I was getting quite concerned about the US$ on a shorter term basis. The $ had gotten itself into a technical jam, above a serious resistance area of 101.74. And the Euro is the biggest part of the index, so the resistance area was mostly about the Euro, but the Yen was sure to follow suit.

QE has been a total failure, and the braindead academics running central banks have finally figured it out. Of course possibly the most braindead of them all is Larry Summers, and he’ll be the last one to figure anything out. He was still wearing Garanimals until his 21st birthday. So Larry will never figure it out, but the central bankers (CBs) are now aware of it – eight years too late. Their stupid econometric models “predicted” that QE would stoke the economy and also inflation, because of the huge increase in the money supply by flooding the system with cash. Overloading the banks, basically, with liquidity, and then they would willingly lend it out to businesses and consumers. But the banks didn’t step up with lending in a big way – they hoarded it. And just to prove what total morons the CBs are, the fraudulent Wall Street banks, and even some fraudulent foreign banks, literally sent the liquidity right back to the Fed itself to sit. And the “private banks” were then paid interest on their excess reserves. What an absolutely asinine scheme. The CBs may be creating money, but this money is just sitting basically dumbfounded on its rear end – just like the CBs themselves do all day. However, this money which they created just sat, and was never lent out, therefore the velocity of this money is effectively zero. And then the PhD economists all over the place also sat around with their algorithms and econometric models trying to decipher why economies remained so weak, and why inflation was moribund. But to this day they didn’t understand that it is the raising of interest rates which will get some lending going, along with at least some pickup in demand for loans – and the beginnings of a pickup in velocity – and inflation.

And when the Fed finally figured this out, and starting raising interest rates in December 2015, then voila! The economy still sucks, but inflation bottomed in the Spring of 2016, along with commodities as a group (base metals bottomed in January 2016). Our view expressed in a post from 1/6/16 was:

“Five years ago, almost no one saw the deflationary wave about to hit, now almost everyone sees no end to the deflation. 2016 is the year for the bottom in both inflation and commodities, likely by March, especially agriculture.”

So now that both inflation and interest have bottomed in the US, and around the world, expect the ECB and the BOJ to begin following the Fed. And of course the Fed never even leads to begin with, they just follow markets. They are all way behind the curve.

The Euro is in a rally mode, basking in all of this “good news”, but it will not last. We became concerned about the US$ last week, as detailed in the video, but the US$ is still in an uptrend overall. It’s just about timing, like everything in markets.