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"Disastrous" bond sale shakes confidence in Germany
By Stephen Brown and Noah Barkin
(Reuters) - A "disastrous" German bond sale on Wednesday sparked fears that Europe's debt crisis was even starting to threaten Berlin, with the leaders of the euro zone's two biggest economies still firmly at odds over a longer-term structural solution.
Investors were also unnerved by reports that Belgium is leaning on France to pay more into emergency support for failed lender Dexia under a 90-billion-euro ($120 billion) rescue deal that had appeared done and dusted.
A special report by Fitch Ratings suggested France had limited room left to absorb shocks to its finances like a new downturn in growth or support for banks without endangering its cherished AAA credit status.
After one of the least successful debt sales by Europe's powerhouse economy since the launch of the single currency, the euro fell to 1.336 to the dollar and European shares sank to 7-week lows.
"The debt crisis is burrowing ever deeper, like a worm, and is now reaching Germany," one of the more eurosceptic backbenchers in Angela Merkel's center-right government, Frank Schaeffler of the Free Democrats (FDP) who are the junior coalition partners, told Reuters.
The German debt agency was forced to retain almost half of a sale of 6 billion euros due to a shortage of bids by investors. The result pushed the cost of borrowing over 10 years for the bloc's paymaster above those for the United States for the first time since October.
"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London.
The new bond promised to pay out a 2.0 percent interest rate -- the lowest ever on an issue of German 10-year Bunds. The auction's average yield was 1.98 percent, down from 2.09 percent for the previous benchmark in October.
Ten-year Bund yields were last up 12 basis points to 2.039 percent versus 1.946 percent for U.S. T-notes.
GERMAN EXPOSURE
Finance Minister Wolfgang Schaeuble's spokesman told a news conference that the auction did not mean the government has refinancing problems and few on financial markets disagreed.
But it was a sign that as the bloc's paymaster Germany may slowly be pressured if the crisis continues to deepen. One senior ratings agency official said it could give Berlin cause to re-examine its refusal to embrace a broader solution.
"It's quite telling that there has been upward pressure on yields in Germany - it might begin to change perceptions," David Beers of Standard & Poor's told a conference in Dublin.
The borrowing costs of almost all euro zone states, even those previously seen as safe such as France, Austria and the Netherlands, spiked in the last two weeks as panicky investors dumped paper no longer seen as risk-free.
"Bunds are starting to lose their appeal because markets have to believe the euro bonds story and Germany is very close to starting, essentially, to guarantee the debt of other countries," said Achilleas Georgolopoulos, strategist at Lloyds Bank in London.
The crux of an acceleration of the crisis in the past month is Italian bond yields' jump to levels around 7 percent widely seen as unbearable in the long term, despite intervention by the European Central Bank to buy limited quantities.
Determined not to be pushed around by financial markets, Merkel is resisting calls, most notably from France, to allow the ECB to act more decisively.
In a forceful speech to the Bundestag lower house of parliament, Merkel issued one of her starkest warnings yet against fiddling with the bank's strict inflation-fighting mandate. She also hit back at proposals from the European Commission on joint euro zone bond issuance, calling them "extraordinarily inappropriate."
Shortly before she began speaking, French Finance Minister Francois Baroin told a conference in Paris that it was the ECB's responsibility to sustain activity in the currency bloc.
"The best response to avoid contagion in countries like Spain and Italy is, from the French viewpoint, an intervention (or) the possibility of intervention or announcement of intervention by a lender of last resort, which would be the European Central Bank," Baroin said.
STABILITY BOND
The chancellor has said the EU treaty bars the ECB from acting as a lender of last resort and printing money to buy government debt. She rejected joint "euro bonds," dismissed a proposal to mutualise the euro zone's debt stock, and rebuffed attempts to allow the bloc's rescue fund to borrow from the ECB or the IMF.
Yet at the same time, she has declared that the only answer to the crisis was "more Europe" and won endorsement from her party to press for a fully fledged European political union based around the euro zone.
The very public jousting over what to do next underscores just how divided European leaders are on how to resolve the turmoil which has accelerated to engulf big countries like Italy and Spain, and pushed out leaders in Rome and Athens.
With time running out for politicians to forge a crisis plan that is seen as credible by the markets, the European Commission presented a study on Wednesday of joint euro zone bonds as a way to stabilize debt markets.
European Commission President Jose Manuel Barroso unveiled proposals for much more intrusive oversight of euro zone countries' budgets and efforts to meet macroeconomic targets, and set out the options for introducing common euro zone bonds.
"I welcome Barroso's proposals, which are a real step forward on many points," Dutch Finance Minister Jan Kees De Jager said in a statement. "It will, however, still be an uphill battle, for there are those who resist further discipline.
"Eurobonds are not a magic solution to the current crisis and could even worsen it," he said. "We have to do first things first, and that means establishing strict supervision and enforcement of budget discipline."
Another alarm bell for financial markets on Wednesday came when Standard & Poor's warned that credit ratings in the euro zone could come under renewed pressure if large parts of the currency bloc slip back into recession, as expected, next year.
Another round of poor data on Europe's manufacturing and service sectors on Wednesday added to conviction that the continent is heading into another recession.
"With so much at stake, one would expect that some accommodation can be found between euro zone monetary authorities and national policy makers that balances substantive government policy actions with more aggressive steps by the ECB to counter a renewed economic downturn," Beers said.
Heck you may get that .9650, I closed all my orders and then made one big order and used my available margin as a stop. Put another order at .96 just above the .854 at .9586 in case I'm wrong here.
RC that was a great trade man, congratulations!
Dude you better be out of that short by now!
Lol, go green!
I think so too. Buying AU here even tho about 10 pips above the fib, close enough for me.
Here's another possibility if this is a leading diagonal on wave 1. Pennies has studied leading diagonals more so he might have some other thoughts if it qualifies. If this is true, then we are in the beginning of minor wave 2 in the early stages of major wave 3 and would be very ugly for risk pairs and equities.
Yup, so much for the .707 on AU, looks like .786 is in the cards.
Buying right here at .9785 althought there's a chance we see 100 pips lower at the .786.
Covered there at .98. The .9785 area is likely to be an area of interest I think with the 4 hour .707.
Wow some nice pips there short on AU off that 15 min trendline.
Well looks like they headed me off at the pass there on the 15 min 144. Gonna just leave it and see what happens
Got standing orders at .9795 and .9695 on AU.
Nice RC! Had to work today so no bottom fishing for me. Think your right on GU tho...we get a cross on the weekly Dow macd below the zero line and it's gonna be at 7500 pretty quick and GU down with it
Yeah AJ just blew up my triple 4 hour fib gartley like it wasn't there. Friggin crazy crap in the works.
EU knows water better than the scientists! LMAO, wonder when my TIPS are going up since the FED is obviously and totally making inflation statistics up? Call it what you want, the game is just getting totally out of control from where the focus should be.
http://www.telegraph.co.uk/news/worldnews/europe/eu/8897662/EU-bans-claim-that-water-can-prevent-dehydration.html
So jav been seeing your charts but I wondering what the goodman setup is.
So you trading hourly charts? Reason I ask is I've got a great EA idea (I think) of taking the 5 min TDI red cross above/below the 5 min center TDI but only when/after the 60 min green is outside of the bands.
I was going to post some of these reports but there's so damn many of them I'll just post the link. Some scary stuff here like drug resistant antibiotics in Europe, Detroit running out of cash, GE tax return, copper theives, Merkel and Cameron at odds on EU, etc. You name it, it's here. Just plain depressing actually but most probably all of it true.
http://www.drudgereport.com/
Could be but it broke the 50 so I'm not touching it unless it come to me at about .9915
I'm conceding defeat to the falling knife theory here. I'll be back at .99.
bring it baby.
.447 just below parity. Gonna add there again, bigger.
I added here.
I think she's capped at 1.0224 or thereabouts.
Probably so, that graph was over 3 months on a 15 min chart. I think I want to make it where it only adds on the martingale setup if the ADX turns down and then make the stops and TP a function of the fib so that instead of 10 pips it runs on to the .618 or .382 for the TP and for the stop I'd want it to be just past the previous .618/.382.
Great chart and research Pennies. I've been scratching my head lately with these channels trying to figure out where they fit in and it looks like you've found it. Gotta tuck that one away in the knowledge base for future reference. Here's some more information from Bulkowski.
http://www.thepatternsite.com/EWleadingTriangle.html
It's one of those patterns that one has to be on the lookout for because it's easily misconstrued for something else. Sort of like when you run across an extended wave 1 it's very difficult to call it that until you get to wave 4.
Last night I wrote an EA that trades against the 50 fib. In other words if ZUP prints a lower .50 then it goes short. An upper .50 fib line then it goes long. I set this for a 10 pip TP with a 150 pip SL and 5 trades max in a Martingale setup where subsequent trades have the same TP as the initial trade. You can see from the graph below how susceptible the .50 fib is.
Statistically I don't think this is quite enough to say a break of the .50 always leads to either the .618 or the .382 on the flipside because of the 10 pip TP but it sure does look tempting. The chart doesn't show a significant amount of money made because I had the trade sizes at .01 - .02 - .04 - .08 - .16 but you can see the consistency in the chart. Got to play around with it some more but I'm thinking a break of the .618/.382 in advance of the .50 fib ever showing up in the first place would be most appropriate.