IIFT Daily Note with Peter Brown

This is a relief rally, not a rally based on reality.

Posted by:  |  Time: 7:52 am  |  Topic:
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The reason the market is expecting a change of course from the ECB is because economies are getting worse. The situation 6 years after the collapse is actually deteriorating. Now we expect the ECB to cut rates, too little too late. The fact is a .25% cut will achieve nothing. Credit is not available in the Eurozone because the banks are bust, cheaper money does not help banks in fact it reduces margins. Look at AIB, they are increasing their variable mortgage rates, what effect will a rate cut from the ECB have on their clients? The money transmission system is broken, credit is not flowing and so growth is falling. It will take a massive stimulus injection into the Euro system to make any difference and even with that we can see from the US it will take years to produce any effect at all.

So what we are seeing is a relief rally based on hope rather than fact. It may continue for a while but it will reverse. Probably after the ECB conference next Thursday. So as with all trading we should not buck the trend and try to find a top. The move down will be substantial so wait for it to begin. In the meantime be careful on the buyside, this is a market that is volatile and irrational. The money will be on the correction and the reality. When the market realises the ECB are not going to release the bazooka that is needed we will sell off hard.

Today levels are:  Euro 1.3060   1.3000  1.2960  S&P  1578  1570  USD/JPY still stuck under 100    97.50 big support

Gold is finding it’s feet again  1400 support 1450  1480  resistance

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