It was a Big Day for the Euro Zone crisis today, with the German constitutional courts deciding that the ESM bailout fund of up to €700bn is legal but Germany’s exposure must be limited to €190bn unless the Bundestag approves more.
In other words, as soon as the €700bn runs out (won’t take long), the Bundestag will approve a lot more than €190bn because it won’t have any choice. So after much pomp, ceremony and silly costumes, nothing has changed then.
In discussing whether or not the crisis is over, the Guardian reports today that “Immediate concerns include: whether Spain and Italy will need help with their borrowing [Er, yes]; whether Greece has done enough to receive its next aid tranche [haha, you're joking, right?]; and whether leaders can produce a credible growth plan (at a time when austerity packages are driving the economies of Greece, Portugal, Italy and Spain deeper into recession).[Growth? With the exception of Italy, what industries do they have to generate growth?]“
The Euro zone is still up Stinky Creak without a paddle. But relief buying is pushing EURUSD toward the 1.3000 level (a high of 1.2936 as I write) demonstrating the market’s bizarre voluntary myopia where the fundamentals are concerned. Every bit of good news is bought as if the all the EZ’s problems have been solved, but the rot is now so deeply ingrained and a part of the Euro that the market must be in a near constant state of denial to keep buying.
But nothing in the Euro Zone has changed. Greece is all but ruined, Spain has no economy now that property has crashed, Ireland was shafted by the ECB, Italy is….well, Italy, and the austerity measures mean the Portuguese fall into the flames has simply gone into slow motion horror-vision. Nothing the ESM has done or can do changes any of these Euro show stopper facts.
My personal view is this relief rally will find a top sooner rather than later and the sell-off will be fast and violent as traders quickly take profits on their longs and jump short.
Adam – TheDayTrader