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EU, POTUS, and SCOTUS...Oh My!

Last updated 6/28/2012 5:30 PM EST (GMT -5) 0 Comments - Add your comment

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Neal Gilbert

Technical Analyst, GFT

Follow @FXexaminer

EU Superfriends Meet

Finally the big event of the week is upon us as the leaders of the European Union get together to talk politics and watch soccer. In the pristine halls of the Justus Lipsius building in Brussels, the leaders of the European nations were discussing a variety of topics including the formation of Eurobonds, and a deposit insurance program for all of the banks in the EU. Many of the nations in the EU are in favor of both, but Germany, who is holding the purse strings, is not. And this is the main crux of what is moving the markets today, and has been spurring speculation throughout the week. Meanwhile, Italy went up 2-0 against Germany in their soccer match. If Italian Prime Minister Mario Monti really wants to get on the good side of German Chancellor Angela Merkel, he better have the cell phone number of the Italian coach and tell him to call off the dogs.

In all seriousness though, Germany is really holding all of the cards for this meeting. In their Parisian meeting before the Belgian meeting Merkel and French President Francois Hollande talked nicely about one another and the need for there to be a unified Europe, but they are on opposite ends of the spectrum when it comes to sharing the liabilities of Europe. Hollande is probably the biggest advocate of Eurobonds, whereas Merkel is its biggest detractor, and it didn’t appear that any headway was made. In fact, previous to the meetings starting today government officials in Germany were reported to say that nothing would come of this week’s meeting, which dashed the hopes of any last collective of traders out there who were hoping for a positive outcome. The most likely scenario will be the one we have come to expect from most European get-togethers; lots of talk, very little action, and plenty of resolutions that they will do something the next time.

SCOTUS

I know what you’re thinking. Are we expanding the acronym again, just one day after we had to expand SICPIG to SICPIGS?  No, SCOTUS stands for Supreme Court of the United States, and we are discussing them today because they made a much anticipated decision in regards to POTUS Obama’s government healthcare plan. They deemed it constitutional, and that it would not be stricken down. The markets were less than impressed as the Dow fell off considerably and risk based currencies followed suit, but with less zeal than the Dow. Since then, there has been a bit of a relief rally off of those lows. The Dow ended up closing down only 24 points as there was a furious rally over the last hour and a half of trading. As for the reason for the drop at the outset, the healthcare bill and money that needs to go in to it is essentially a tax. If corporations and people are taxed more, there is less money for margins, less money to invest, and less money for R&D. These are things that businesses do not like, therefore selling off on the news that Obama-care would not be repealed.

A US Recovery?

In the US economic news department the final GDP figure was released which came in right at expectations along with the GDP Price Index (better than expected) and Jobless Claims (worse than expected).  Due to the mixed nature of these results and the concentration on Europe and the Supreme Court decision, they were largely ignored.  Looking at the data though, they could point to an improving economic climate in the US.  In particular, the GDP Price Index rising to 2.0% from 0.9% the quarter previous indicates inflation might be starting to creep up.  If this trend continues, the Fed may be forced to raise interest rates sooner than many of the members had assumed in their forecasts.  Coupled with the improving housing market numbers released earlier this week, we may be seeing the genesis of a recovery in the US.  That does not bode well for those that are calling for more Quantitative Easing from Dr. Bernanke, as the market begins to recover without the help of federal stimulus.

Looking Forward

As coffee pots in New Zealand, Australia, and Japan start brewing, traders in those regions will have plenty to consider. New Zealand starts the news cycle by releasing Building Permits, followed closely by the UK’s Gfk Consumer Confidence. Japan then has PMI, Unemployment Rate, Industrial Production, and CPI data coming out of their ears to complete an hour’s worth of heavy announcements starting at 22:45 GMT. Sprinkle in any rumors about an outcome in Europe, and this has the potential to be a very exciting trading session.

In my opinion, the most likely scenario is that Asia will be more than eager to sell, sell, sell as they read the overnight headlines about Obama-care, and the rhetoric coming out of Germany. The news announcements are important, but probably won’t be drastic enough to trump European risk. Coupled with the rally that took place in the late hours of US trading, prices may be too tempting to pass up.

For more intraday analysis and trade ideas, follow me on twitter ( @FXexaminer ) and/or Facebook (FX Examiner) and attend our daily Live Market Analysis webinars. Visit your local GFT website under “Getting Started” to sign up.   I was also recently interviewed for The Trader’s Podcast, a two part interview which can be heard here and here .

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About The Author

Neal Gilbert, an avid follower of the markets, began working at GFT in 2006, educating new and experienced traders in an easy-to-understand manner. His focus has been teaching common technical indicators, risk management, and sharing his favourite trading strategies. His Braving the Rapids strategy guide can be found on GFT’s website.

Neal conducts live webinars throughout the day, including his” Long and Short of It,” which is a Fundamental Live Market Analysis webinar centred on key economic releases. He also conducts webinars in Basic and Advanced Technical Indicators, Volatility and Risk Management, Trader’s Edge, and Fibonacci Trading and Theory.