As I sit and peruse Bloomberg headlines, charts, look back at the last week and try to make sense of what seemed like a senseless market (today is more normal), I am reminded harshly of how “senselessness” invades life as well. I am also reminded that unfortunately the questions of “why” are more baffling and more tragic when dealing with life’s “non-normal  and senseless trends”. 

Yesterday, my 14 year old son asked if he could go to the midnight showing of Batman with friends.  I thought “why not?”.  He is heading into high school. It is summer time.  I have never been to a midnight showing of any movie, but have seen many a picture of people in line awaiting the newest Harry Potter, Twilight or what have you.  They are always smiling when they go in. They are always smiling when they come out.  Anyway, my son and friends ended up not going which was fine (we do not live in Aurora by the way). They reasoned they could see the movie over the weekend and still have a good time.  I was able to have a normal nights sleep. 

So today, when I awoke to the news of what happened in Aurora Colorado, it prompted reflection on the senselessness in life’s trends.  Why does tragedy like last night happen?   How can people enter a theatre full of joy and innocence and in an instant, have that trend reversed?  And the answer is often, “I don’t know”.

Admittedly, there were times this week, as I sat here in the safety of my cocoon, when I  asked the question of the market “Why?”.  Why is trend down in the EURUSD reversing and trending up?  Then why is the trend higher, reversing and trending back the other way?   And the answer was often “I don’t know.”

What I do know with regard to the market – what I do have “faith” in – is that the trend (i.e., a normal market) will resume at some point.  I don’t believe in the abnormal but in the normal.  True to form, it only took until today to get back to what is “more normal” .  No big deal.

The trend of normalcy in life was broken in a community in Colorado.  The stories of the victims (and those who survived) will be told over the next few weeks – perhaps longer. It was a big deal.   The trend in the victims lives as they entered the theatres were quickly reversed in an instant. The trends in the lives of their family and friends were reversed in an instant as they were awaken with the news.    It doesn’t make sense.  

What I do hope – what I do have faith in – what I do pray for, is that the trends in the lives of those who lost loved ones will be reversed for the better.  I hope and pray they find peace with life again – some how and some way – and become stronger because of the aberration that was simply not normal. It will likely take more than a stinking week or two – it may take months and years -  but I hope they are able to look for peace and “normalcy” and find it. 

For those that have been injured, I hope and pray that the seemingly impossible physical and mental pain they now suffer will reverse and the positive trend of their lives will be reestablished.  Don’t give up.  Darkness does turn to light.   

And for those that died, I have faith that the legacy left behind, the lessons provided others, the technicolor vivid memories friends and family are now left with, will live forever.  No one can take them away. NO ONE.  And I sincerely hope that the joy of riding that last trend into the theater was a great, great feeling.  May you all Rest in Peace…

• Eurogroup approves Spanish bailout
• EU’s Rehn: Spain expected to correct deficit by 2014
• Spain lowers GDP forecasts
• Valencia asks to tap regional bailout fund
• Dovish Fed chatter
• ECB says Greek debt ineligible as collateral
• Canada CPI 1.5% y/y vs 1.7% exp
• Spanish yields blow out to record highs
• Spanish-German spreads hit record wide
• Egan-Jones downgrades Spain to CC+ from CCC+
• Spanish stocks fall 5.8%, the most in two years
• EUR/USD hits lowest since 2010
• JPY leads, EUR lags

One headline after another eroded faith in Spain and undermined the euro. It was a one-way street, falling below 1.2225 as the bailout was finalized. Eventually the barrier at 1.2150 gave out but it was short trip down to 1.2144 — the lowest since 2010. EUR/USD rebounded and coasted through the rest of the session just above 1.2150.

Cable followed a similar path but continued to make fresh lows after the European close, down to 1.5612.

The commodity bloc slumped but not badly, falling 20-40 pips from yesterday’s levels.

Have a great weekend.

The S&P 500 closed near the lows of the day but the last 3 hours of trading were very quiet.

On the day, the index fell 1% to 1362. On the week, it was up 0.4%.

In FX, the Australian dollar was the best performer on the week while the euro lagged.

Expectations are falling fast for next week’s advanced Q2 GDP report.

Bloomberg has the consensus estimate at 1.4% but the latest survey from Dow Jones puts growth at just 1.2%.

The data won’t be released until Friday and there will be a chance to revise estimates after Thursday’s report on durable goods orders/shipments.

My initial impression is that the bar is being set very low, which could be a positive for risk trades.

From the CFTC’s Commitments of Traders report:

• Net short euro position at 167K vs 166K last week
• Net long AUD at 14K vs 19K prior
• Net long JPY 11K vs 9K prior
• Net short CHF 23K vs 17.5K prior
• CAD falls to net short 1.2K vs net long 4.3K prior
• GBP net short unchanged at 7.5K

It’s a good sign for euro shorts, showing the trade isn’t yet overcrowded (at least not as of Tuesday’s close, when the data is taken).

Gold touched off $1587.

The gold chart is tightening on several time frames, including the hourly look. I expect a large move in gold before the end of the month

Technically, any large move in gold, especially a fall below $1520 is a go with. I suspect hints about QE3 will cause a rally but a flight to safety could also spark a sell off.

The FT’s Alphaville has an article looking at the difficulties facing the Fed if it cuts interest on excess reserves.

During his testimony on Tuesday, Bernanke did include the possibility of lowering IOER in a list of measures the Fed could potentially take in future, but he did so only casually, as if taking inventory rather than suggesting he wanted to use it.

Or as a UBS strategist writes: "It's on the menu, but not on the table."

Money market funds are a chief concern but the Fed is investigating ways to mitigate the risks.

The S&P 500 is now down 1% to 1362.

We’ve broken the hourly trendline and the 100-day moving average at 1360 is nearby.

Price action in AUD/USD is very similar and the correlation between AUD and stocks is extremely high this month (0.809).

AUD/USD bids down to 1.0350 holding so far ahead of stops at 1.0340.

GBPUSD has ticked to a new low for the day at 1.56149.  The price however is getting closer to the  38.2% retracement target at the 1.56049. I would think that there should be additional profit taking bids against stops below.  ON a break,  the price should look toward the high from early July 16 at 1.5591 and/or a test of the 200 hour MA at 1.5580.

…but worth salting away for a session where QE3 hysteria returns.

Friend of ForexLive Vincent Cignarella and a colleague look back at the 1988 drought and the lower dollar which seemed to be a result.

Corn plays an even larger role in the US economy today given the silly ethanol mandates put in place to appease the farm lobby, the enviros and energy independence crowd (remember them, from the pre-shale oil days?) .

When and if Europe begins to recede from the headlines, the drought could become the next cause célèbre for currency markets.

REBROADCAST WEBINAR: The Traders Course with Greg Michalowski
WHEN: July 19th 2012
TOPIC: "When every level becomes important. What do you do?"
The EURUSD (the most traded currency pair in the world) is stuck in the mud and it seems that every level is important. I sense the frustration and anxiety from the comments (i.e., "Which way is it going?!?") . Let's take a step back and try and make sense of what you can do to take back some control.

TO WATCH THE REBROADCAST: https://www1.gotomeeting.com/register/982376785

The EURJPY has made new lows today. The last time the price was this low was in November 2000.   The low for the move today reached  95.365. This took at the most recent low from last month at 95.55 (was a spike low on June 1 2012 and was quickly reversed).  .  The low in 2000 extended all the way to 88.88 (October 2000).

Looking at the hourly chart, the price is also below resistance/support line at the 95.86 area  (Red channel line) and is currently testing a flatter channel support at the 95.52 level (see blue channel support line in the chart below).     As long as the price is able to remain below these lines, the bears remain in firm control in this pair.  

What may give sellers cause for pause is the  last dip has moved to the 95.46 (see 5 minute chart below) -above the low extreme for the day. The topside trend line on the 5 minute chart comes in at the 95.68 level now. The 38.2% of the move down from the most recent high comes in at 95.79, the 100 bar MA (blue line in the chart below) comes in at 95.84 currently and coming down.  Traders – on a Friday – may use these levels to dictate “do I stay” with the trend over the weekend or “do I exit”.    Watch the 95.46 level for clues for a potential Friday PM selloff.  If it moves below, the lows may be under assault again.  

Of note for the bears is the ability to hold the 100 hour MA over the last few days. Not being able to extend above this MA gave the bears a strong reason to sell and also increases the importance of the MA line going forward.   

USD/JPY under some pressure and in range of yesterday’s post-claims low of 79.43. Stops below there with bids also ahead of an option barrier at 78.25. A break below 78.00 would get the MOF’s attention.

AUD/JPY looks like it could be in for a round increased volatility. Today’s failure at the 100-day moving average raises the potential for a sharp decline if bids around the 200dma give way.

–Rep. Frank: Municipalities Almost Never Default
–Rep. Campbell: Will Probably Have 9 More Bankruptcies ‘Very Soon’

By Yali N’Diaye

WASHINGTON (MNI) – Lawmakers Friday disagreed over the level of
default risk in the municipal sector, at a time when recent bankruptcy
filings in California raise the question of the eroding stigma
associated with taking that step.

Rep. Barney Frank, the Ranking member on the House Financial
Services Committee, brought up the issue in the context of what he deems
the unfair treatment of municipal issuers by rating agencies.

Municipalities “almost never default,” said Frank, whose personal
investment portfolio is nearly entirely in Massachusetts municipal
bonds, “because they are double tax exempt and because the rating
agencies inaccurately tell people that there is a risk of default, which
is not existing.”

He noted that in the recent bankruptcies, “the bondholders are
getting paid,” adding in Rhode Island, pensioners were “put behind”
bondholders.

Barney indicated municipalities do fear the contagion risk
associated with a bankruptcy and “communities can’t afford that
contagion that would be there.”

However, Rep. John Campbell strongly disagreed and even warned of
more to come.

“I could not disagree more, coming from California where we’ve had
three municipal bankruptcies — we probably will have nine more very
soon,” said Campbell.

Once municipalities and a lot of districts properly account for
their healthcare and pension obligations under the “new — and I believe
correct — government accounting standards” he continued, “many of them
will be on paper insolvent.”

In fact, he said, “most of them” in California that he knows of
will be likely be insolvent on paper.

Campbell referred to the new Pension Accounting and Financial
Reporting standards adopted in June by the Governmental Accounting
Standards Board, that are expected to make state and local governments’
balance sheet look weaker than they are today.

So “I think we have great concern about municipal bonds,” said
Campbell, who unlike Frank does not own any municipal bonds in his
personal investment portfolio.

“You can’t assume they are not going to be at fault, and when there
is as much trouble as there is out there and as many insolvent cities
and special districts this is a concern,” he said.

“There is a lot of risk out there,” he concluded.

Campbell represents California’s 48th Congressional District which
encompasses Newport Beach, Irvine, Tustin, Lake Forest, Laguna Beach,
Laguna Hills, Laguna Woods, Laguna Niguel, Aliso Viejo, Dana Point, and
portions of San Juan Capistrano, and Santa Ana.

However, Frank argued that when looking at the likelihood of
default, “municipalities pay an unjustified risk premium.”

He added that when the rating agencies rate municipalities, they
look at what seems to be sometimes “how well dressed the members of the
city council are, which is often not so good.”

Robert Doty, president of consulting firm AGFS and a
California-based municipal advisor, said “there really are very few
defaults overall,” with some sectors more vulnerable than others.

“Traditional governmental securities virtually never default,” he
said, adding that a key factor in defaults is the “feasibility” of the
project.

The recent bankruptcy filings in California prompted rating
agencies to comment.

“The looming defaults by Stockton and San Bernardino raise the
possibility that distressed municipalities — in California and,
perhaps, elsewhere — will begin to view debt service as a
discretionary budget item, and that defaults will increase,” said Van
Praagh, author of the report titled “Recent Local Government Defaults
and Bankruptcies May Indicate A Shift in Willingness to Pay.”

However “Our expectation is that unwillingness-driven defaults will
rise but remain rare, particularly among Moody”s-rated issuers.”

“Recent bankruptcies and defaults of distressed municipalities have
added to the headlines and default totals for 2012 but the amount of new
defaults is nowhere near the pace predicted by some analysts late in
2010,” said S&P Dow Jones Indices’ Vice President of Fixed Income
Indices, JR Rieger.

“As of the end of June 2012, outstanding monetary defaults based on
par value as tracked by the S&P Municipal Bond Index have risen to 0.62%
(over $8.4billion) of the index which tracks over $1.35trillion in
municipal bonds,” the note continued.

In the case of California, he said that despite the recent
developments, “munis issued within the State continue to outperform the
overall municipal bond market” on a year-over-year basis. That is not
the case on a monthly comparison, however.

Year-to-date, underperforming states have been Connecticut,
Georgia, New Mexico and Utah.

Friday’s hearing about “The Impact of the Dodd-Frank Act on
Municipal Finance” otherwise focused on the definition of Municipal
Advisors, with witnesses opposing the Securities and Exchange
Commission’s interpretation of the law, arguing the agency went beyond
Dodd-Frank’s intent.

In fact, Rep. Frank sided with them.

In particular, normal activities of a bank that work with
municipalities “should not trigger a registration requirement,” he said,
which is different from offering active investment advice or advising
another structure.

“The language of the law does not support a more intrusive effort
to put regular banking activities under this provision and I hope the
SEC will listen to this,” Frank added.

“The SEC should be listening to us and following the intent,” he
concluded.

American Bankers Association Chairman Albert Kelly said earlier
during his testimony that “the SEC has proposed rules that interpret the
scope of the ‘municipal financial products’ in Section 975 far beyond
the securities activities of state and local governments to reach all
‘funds held by or on behalf of a municipal entity.’”

He added, “This would mean that giving advice about traditional
bank products such as deposits and loans could trigger registration as
municipal advisors by most banks and each of their employees who may
give ‘advice’ to local governmental bodies such as schools, libraries,
hospitals, etc.”

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: MR$$$$,M$U$$$,MGU$$$,MFU$$$]

• According to Dow Jones, the government sees no need to wait until Sept to request the first tranche of aid

I don’t see any reason to wait.

• UK FTSE -1.1%
• German DAX -1.8%
• French CAC -1.9%
• Spain IBEX -5.9%
• Italy MIB -4.4%

Closed near the lows.

FRANKFURT (MNI) – A fiscal union for the Eurozone could prevent
“unsustainable” budget policies and control debt issuance, European
Central Bank Executive Board member Benoit Coeure said on Friday.

“With these powers in place, a path towards common debt issuance
would also be possible, but only at the end of the process,” he said in
a speech for delivery at a conference in Mexico City.

Coeure’s comments echo those of fellow Board member Joerg Asmussen,
who said Tuesday that increased sovereignty sharing “would imply that a
euro area authority would have competence to limit countries’ ability to
issue debt.”

Coeure noted the significant steps taken at the EU Summit in late
June, including the possibility for direct recapitalization of banks via
the future European Stability Mechanism, which is “crucial” to break the
feedback loop between banks and their national governments, which “is at
the heart of the crisis.”

“This would move the euro area closer to the type of financial
union we see in federations like the U.S. or Switzerland, where banking
sector problems are dealt with at the federal level and have no
implications on the finances of the federated units,” the board member
said. “Of course, this must be accompanied by appropriate incentives for
banks to limit moral hazard.”

The central banker also lauded the commitment of leaders to
establish a single bank supervisor, adding that “the ECB stands ready to
play a role, provided that there is no contamination between monetary
policy and financial stability.”

While acknowledging that fiscal consolidation often leads to
short-term pain, Coeure nevertheless stressed how it was essential for
sustainable growth.

“I do not deny that there are negative demand effects in the short
term,” he said. “But for the longer term, sound fiscal policies are
essential to lower borrowing costs and encourage investment. Moreover,
in those countries experiencing severe sovereign debt tensions, fiscal
consolidation is unavoidable to maintain market access.”

– Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com –

[TOPICS: MT$$$$,M$$CR$,M$X$$$,M$$EC$]

The activity has quieted down a bit. There still is the London/European close to contend with but there is a slowing.  Stocks are off the lows. Chipotle is certainly taking it on the chin – down over 20%.  I make my own “bowls” for the family at home for a fraction of the price but that’s just me (can of corn, black beans, lettuce, chopped tomato, salsa, chicken, taco seasoning packet, sour cream, rice….).  I get more chicken too…

EURUSD

GBPUSD

The GBPUSD broke below the 100 hour MA (blue line in the chart below) and fell below trend line support like as well. The correction off the low found sellers near that broken trend line. This keeps the sellers in charge. The next target remains the 38.2% of the move up from the July 12th low at the 1.56049. 

Anyway. the EURUSD has corrected to the 50% of the last leg down at 1.21742. Stay below and the shorts remain in control  The price low reached 1.21436 – short of the next target at 1.2131. 

–Boehner, McConnell Blame Dems on Cliff; Reid, Pelosi Hammer GOP
–Senate Majority Leader Says Deal Within Reach If GOP Is Open To Revs
–Senate Minority Leader Hammers Dems For ‘Thelma and Louise Economics’
–House Passes Bill Calling On OMB To Specify Coming Spending Cuts

By John Shaw

WASHINGTON (MNI) – Capitol Hill was the venue for another week of
partisan spinning and tactical maneuvering related to the coming fiscal
cliff, but it seems increasingly likely that outcome of the November
elections will drive how these budget negotiations are conducted and
concluded.

The fiscal cliff refers to the convergence of three fiscal events
later this year or early next year: the expiration of Bush-era tax cuts,
the implementation of across-the-board spending cuts, and increasing the
statutory debt ceiling.

House Speaker John Boehner Thursday blasted Senate Democrats and
President Obama for the uncertainty surrounding the fiscal cliff,
declaring that the House has done all that it can to avoid the cliff.

He said the House has already acted to replace the scheduled $110
billion in spending cuts for the 2013 fiscal year that are set to begin
in January with a more acceptable package of spending cuts.

And he repeated that the House will vote later this month to extend
the Bush-era tax cuts for a year and said the Democratic plan to extend
tax cuts only for those making $250,000 or less would “tank” the
American economy.

“We’ve done our job,” he said.

Boehner said that Obama and Senate Majority Leader Harry Reid
worked to prevent the Super Committee from reaching a deficit reduction
agreement last fall.

“They worked to undermine the work of the Super Committee,” Boehner
charged.

Senate Majority Leader Harry Reid took sharp exception to this
view, arguing that all of the drama and uncertainty related to the
fiscal cliff would vanish if Republicans were open to a small increase
in revenues.

Reid said the GOP’s ideological and political aversion to
additional revenue scuttled a host of budget negotiations that have
occurred over the past year, including the talks between Obama and
Boehner as well as the work of the Super Committee.

Reid said Thursday the disruptive effects that would be caused by
the U.S. going over the fiscal cliff can be averted if Republicans will
agree to a deficit reduction package that includes additional revenues.

“It can be avoided. It’s all up to Republicans,” Reid said.

“All they have to do is give some revenues,” he said of
Republicans, adding that Democrats are seeking a “little bit of help
with revenues.”

Reid has said repeatedly that Democrats are eager to replace the
fiscal cliff with a broad deficit reduction package that includes both
spending cuts and tax increases.

Reid and his leadership team said the Senate would hold votes in
the coming weeks on Democratic and Republican tax plans.

The Democratic plan calls for extending all Bush-era tax cuts for
families making $250,000 or less. The GOP plan calls for extending all
the Bush-era tax cuts.

Senate Minority Leader Mitch McConnell spent much of the week
hammering Senate Democrats for shifting to a tougher stance on the
fiscal cliff negotiations this week.

McConnell Thursday accused Senate Democrats of embracing “Thelma
and Louise economics” by threatening to allow the nation to go over the
fiscal cliff at the end of the year unless Republicans agree to a
deficit reduction package that includes additional revenues.

He was referring to remarks made Monday by Sen. Patty Murray, the
fourth ranking Senate Democrat, who said that Democrats would like to
reach a budget agreement with Republicans to avoid the fiscal cliff. But
she said they will not accept an agreement that does not include
concessions from Republicans that has additional revenues.

Murray said that Democrats should be willing to let the nation
plunge off the so-called fiscal cliff unless Republicans agree to
additional revenues as part of a larger deficit reduction plan.

In his remarks Thursday, McConnell said increasing any taxes under
current economic circumstances would cause a “calamity” that would sweep
the American and global economies.

He accused Democrats of launching an “ideological crusade” by
opposing the extension of all Bush-era tax cuts, including those on the
wealthy, adding that this strategy is tantamount to playing “Russian
roulette” with the American economy.

In their attempt to frame the debate over tax policy, Republicans
cited a report by Congress’ Joint Tax Committee which said that while
the GOP plan to extend all the Bush tax cuts would cost about $300
billion in 2013, the Democratic alternative would cost nearly as much at
$272 billion.

Finally, The House voted Wednesday, 414 to 2, to require the
administration to spell out the consequences of the scheduled $110
billion in spending cuts that are set for the 2013 fiscal year.

House Budget Committee Chairman Paul Ryan said the legislation is
need to compel the administration to provide a “full and complete
picture” about the impact of the sequestration process on specific
government programs.

Earlier in the day, the House Armed Services Committee held a
hearing with officials from the defense industry to hear their views on
how the coming defense cuts would effect their industry.

The chairman of the House Armed Services Committee, Rep. Buck
McKeon, said the coming defense spending cuts are causing widespread
turmoil in the defense industry.

“This impasse, and lack of a clear way forward, has created a
chaotic and uncertain budget environment for industry and defense
planners,” he said.

“While the cuts are scheduled for implementation January 2nd,
companies are required to assess and plan according to the law–and
sequestration is the law right now,” he said.

Of the $110 billion in scheduled spending cuts in FY’13, $55
billion would come from defense. Over the full decade, the sequestration
process calls for about $500 billion in defense cuts and about the same
amount from domestic discretionary programs.

During the House Armed Services hearing, Rep. Adam Smith, the top
Democrat on the panel, articulated the Democratic view that
sequestration can only be replaced by a “balanced” mix of spending cuts
and tax increases.

“Revenues need to be increased, mandatory programs need to be
brought in line with what we can afford over the long-term and domestic
spending should be carefully examined to find real and substantial
savings over time,” Smith said.

The panel heard from leaders of major defense contractor: Lockheed
Martin, European Aeronautic Defence and Space, Pratt and Whitney, and
Williams-Pyro.

The witnesses said the sequestration process would cause the loss
of many thousands of jobs in the defense sector.

** MNI Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$,M$$CR$]

That risk is working out pretty well so far for the euro shorts.

• Eurozone clearly understands time of partial solutions is over
• Europe making more progress than observers think

I think politicians and central bankers overestimate their power.