by Poly, Zentrader
The Italian election results were very big in my opinion. It again underscored the people’s impatience and unwillingness to embrace growth-crushing austerity. The problem is that Italy is going to need help restructuring their debt at some point in the very near future, for this I am very confident. At 130% of debt to GDP and an economy potentially facing depression like conditions in the coming years, Italy remains the 2,000 pound elephant in the room. The IMF and EU would never agree to a bailout without deep austerity, but in this case the electorate has already beaten them to parliament. With a €2 Trillion debt pile, Italy may well be the driving force that breaks the monetary union apart.
Of course this potential crisis has always existed, it never went away. The ECB’s pledge to support these sovereigns at all cost (using banks as a conduit) has only masked the real structural problems facing Europe. This is likely the source of the recent Dollar strength I’ve been seeing. The Dollar is showing a Daily Cycle Top now, but that’s after 17 days. This type of strength points to a new Investor Cycle that is gaining traction with the potential to really breakout on a weekly chart.
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The Euro is now showing signs of vulnerability. With a break of its weekly trend-line and a turn of the oscillators, it’s pretty clear now that the Euro topped back in Week 11. This confirms the new Dollar IC, therefore this bounce out of the (4th Daily Cycle) is likely to be just a counter trend rally back to the $1.34 area before topping. It’s my belief that once the Euro tops, it will signal a top in all risk assets and the long hard decline towards the next ICL will accelerate.
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